As interest rates rise, more savers are exceeding their Personal Savings Allowance and becoming liable for tax on their cash savings. The Investors’ Chronicle article explains that Cash ISAs can be an effective way to protect savings from tax, particularly for higher-rate and additional-rate taxpayers, who have a lower allowance or no allowance at all. However, investors should think carefully about how they use their annual ISA allowance, as it cannot be carried forward to future tax years.
The article highlights that ISA allowances are often best used first for investments such as shares, funds and bonds because these assets have greater long-term growth potential and are likely to generate more taxable returns outside an ISA. Tideway Wealth’s Sam Ratnage notes that investors should generally prioritise sheltering higher-returning assets before using remaining ISA allowance for cash. If an investor has spare ISA allowance after funding their investments, placing cash within a Cash ISA can provide valuable tax advantages while maintaining flexibility and preserving future investment options.
If some or all of your cash holdings are attracting tax you could consider holding them in Isas – as long as you have not used up this allowance to shelter higher-returning investments such as funds and direct shareholdings. “You should put your least tax-efficient assets into an Isa first,” says Sam Ratnage, wealth manager at Tideway Wealth. “Investments such as bonds and equities target higher returns than cash [so], even with [higher] interest rates, are likely to be subject to more tax than cash over time. This means that you should use your Isa allowance for these assets before you use it for cash.”
To read the full article visit: Investors’ Chronicle.
- The content of this document is for information purposes only and should not be construed as financial advice.
- Please be aware that the value of investments, and the income you may receive from them, cannot be guaranteed and may fall as well as rise.
- We always recommend that you seek professional regulated financial advice before investing.