Josh Hall said he has “less motivation to save” after hearing the news that the cash ISA allowance will be cut from £20,000 to £12,000 for those under 65.
The 20-year-old from Derbyshire has already managed to put away around £28,000, spread across four cash ISAs with the Nottingham Building Society.
He is hoping to save enough for a house deposit and for retirement, but he is “worried” about the impact of the changes announced by the Chancellor in Wednesday’s Budget.
Speaking to The i Paper, he said: “The change does worry me, as the Government is removing choice and trying to force people into stocks and shares, which I don’t consider a viable option for me.
“I need a reliable, low-risk way of saving money that will put me in a position to, eventually, be able to own my own home. That becomes difficult to plan for if my savings are going up and down in value. Investing is not viable for everyone under 65.
“The Government is removing individual choice without providing the tools to help people make an informed and educated decision about their investments.”
Rachel Reeves hopes the move to cut the cash ISA allowance from 2027 will encourage more people to invest rather than only save in cash.
ISAs allow people to save £20,000 a year tax-free – in either cash savings or stocks and shares. Money in savings accounts outside ISAs is subject to income tax.
If you are a basic rate tax payer, you pay income tax once you have made over £1,000 in interest, and pay it at a rate of 20 per cent, though this will rise to 22 per cent as a result of the Budget.
Many savers may not notice the effect of the cut to cash ISA allowances on a day-to-day basis. But they could be hit when they come into a lump sum, such as an inheritance or a property sale.
Josh typically saves throughout the year and then pays that cash into one of his ISAs as a lump sum.
He said: “I think that I will have less motivation to save overall. I will find myself in a position where the more I save, the more tax I will have to pay.
“This alongside the changes to pensions, which means I must pay more tax in saving for my retirement, will make me reconsider what I do with excess money that would have, otherwise, gone into savings.
“I appreciate I am in a very privileged position to be able to live at home and save the way I do, but I am by no means rich, and taxing me more is just making it harder for me to achieve my goal of being able to own my own home and achieve my personal and educational goals.”
In the future, Josh may consider putting his money in a stocks and shares ISA, but not anytime soon, he said.
In the lead-up to the Budget, banks, building societies, and campaigners warned that the move could force people to pay more tax.
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Around 14.4 million people have a cash ISA, according to figures from AJ Bell, while 4.2 million hold a stocks and shares ISA.
Before the announcement, Tom Selby, director of public policy at AJ Bell, warned: “Tinkering with the cash ISA allowance would be an ineffective way to promote investing, with more than half of Brits saying that, if faced with a cash ISA cut, they would simply move their money to a different savings account.
“It would also add significant further complexity to the system when Labour said before the general election they were committed to simplification.”
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