Millions to have personal savings allowance slashed to £500 from tomorrow

Savers face a STEALTH TAX under the new Labour Party government following tomorrow's Budget. The Chancellor Rachel Reeves, the Labour Party MP, could impose an extension on the current freeze on income tax thresholds until 2030.

The decision is projected to pull more people into the higher rate of income tax which is charged at 40 per cent. It would would the personal savings allowance for 2.7 million workers slashed to just £500.

The interest you receive is normally paid automatically into your savings account. If you earn any interest that exceeds the personal allowance, then some tax will be owed on that money to HMRC and this can be paid through your tax code.

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The PSA also extends to income from corporate bonds and government bonds, unit trusts, open-ended investment companies, investment trusts, trust funds, and even life annuity payments. The building society's analysis of Office for Budget Responsibility (OBR) figures found savers would be hit with a collective tax bill of more than £12billion in 2029. It is estimated 2.7 million workers would see their personal savings allowance half from £1,000 to just £500.

Tom Selby, the director of public policy AJ Bell, said: "This is an inevitable consequence of the deep freeze on income tax thresholds and something all savers need to be aware of. If you have significant cash savings and are likely to pay tax on your interest earnings as a result, it’s worth considering putting some or all of these in a tax product like an ISA, where they can grow completely tax-free."

Accountancy group BDO warned: "It's not impossible that the Chancellor could seek to impose a lifetime cap on ISA saving - perhaps set at around £500,000." If you’re employed and you exceed your personal allowance, there is nothing you need to do yourself.

Your bank will directly inform HMRC about the interest earned on your savings account and the tax owed be paid automatically through ‘pay-as-you-earn' (PAYE). If you're self-employed with interest income from non-ISA savings that exceeds your PSA, you’ll need to make sure that it’s declared on your self-assessment tax return.