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UK savers are rushing to open tax-free cash individual savings accounts (Isas), in a sign of investor concerns about Labour’s first Budget next week.
New data from investment group Hargreaves Lansdown revealed gross new business across the platform’s cash Isa accounts hit a record high in September.
“There has been a wave of activity from our savers, as the Budget focuses the attention of clients to reassess their portfolio,” Hargreaves said. “New accounts remain elevated in October as we approach the Budget.”
Investor concern about which investment and tax proposals Britain’s chancellor Rachel Reeves will announce on October 30 has prompted moves to tax-sheltered investments.
Fears of higher capital gains levies partly account for the increased popularity of cash Isas, as do higher deposit rates.
Hargreaves has offers of rates as high as nearly 4.89 per cent on its three month Active accounts, which automatically switches deposits into the highest yielding deposits from the various providers on its platform. Rival AJ Bell offers 5.09 per cent when using its Dodl app.
“There has been a deluge of consumer savings flowing into cash Isas this year, prompted by significantly more attractive interest rates and higher tax liabilities,” notes Laith Khalaf, head of investment analysis at AJ Bell.
Not just cash accounts are receiving inflows though. Savers this year have shifted their investments into Isas whenever possible under Treasury annual limits, up to £20,000 per individual.
On Interactive Investor’s platform, “bed and Isa” transactions — shifting the same underlying investments into an Isa structure — are up 44 per cent since July 1 to the end of September 2024 compared with the same period the year before.
Investor nervousness has already been signalled by a rise in capital gains tax (CGT) receipts in the third quarter, which jumped 16.3 per cent year on year to £572mn. Monthly CGT received in September of £192mn were the highest figure reported that month since at least 2008.
This shift has also been driven by changes made by the previous government, as the annual tax-free allowance for capital gains for individuals has fallen from £12,300 in 2022-23 to £3,000 in 2024-25. These changes and the risk of other increases to CGT, together with more attractive deposit rates, could further erode the appeal of UK equities.
“By holding too much cash, savers do themselves an injustice by shunning the higher long-term returns associated with stock market investment,” according to Khalaf at AJ Bell.