Tax incentives for savings and investments in the UK are forecast to rise to £41.2bn ($54.12bn) in the 2024-25 tax year, marking a 7% increase from £38.7bn in 2023-24, according to new research by Bowmore Financial Planning.
This increase is attributed to a 22% rise in tax breaks through Individual Savings Accounts (ISAs), which are set to grow from £7.7bn in 2023-24 to £9.4bn in 2024-25.
The value of ISAs has been amplified due to recent cuts in the tax-free allowance for capital gains made outside of an ISA, making the capital gains tax (CGT) exemption for gains within an ISA more valuable.
In April 2023, the annual tax-free CGT allowance was reduced from £12,300 to £6,000 and has been halved again to £3,000 for the tax year 2024-25.
Despite these reductions, Bowmore highlights that UK savers and investors still have access to generous tax breaks.
However, they caution that with the upcoming spring statement, it is advisable for investors to use these tax breaks while they are available, as they could be subject to changes or removal by the government in the future.
A portion of personal finance tax breaks, amounting to 71% or £29.5bn, are related to pension schemes in the 2024-25 tax year.
Bowmore Financial Planning CEO Mark Incledon emphasises that pensions should continue to be the primary savings vehicle for UK savers.
Other personal finance tax incentives that have seen increases over the past year include Venture Capital Trusts, which are expected to rise to £330m in 2024-25 from £320m in the previous year.
Incledon said: “Higher CGT means it is more important than ever for investors to maximise the tax incentives available through ISAs. As CGT rates go up, avoiding these avoidable taxes becomes even more difficult – and with the government’s spring statement rapidly approaching, there is no guarantee that these incentives will last.”
“The autumn Budget has shown the government won’t shy away from increasing taxes on savings and investments, meaning It has become even more vital to take advantage of tax reliefs.”
“By prioritising action now, taxpayers can shelter their savings and investments from the worst of these tax increases and keep more of their gains in the long term.”
In July 2024 Bowmore Financial Planning reported the number of taxpayers caught in the UK’s 60% ‘tax trap’ for high earners rose by 23% over the previous 12 months, from 436,000 to 537,000.
