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19th February 2025
12:29pm GMT
UK residents are being urged to make the most of a unique savings account that could protect them from 'hidden taxes'.
Sky News recently reported that the cost of living crisis is set to continue a little while longer as bills continue to mount.
A report recently published by the BBC saw the Bank of England suggesting we're going to experience a rise in inflation throughout the year.
Thousands of UK households have been trying to prepare buy putting any extra pennies away in a savings scheme including tax-free Individual Savings Accounts (ISA).
An ISA can be used to save for your first home, invest in your future, or build fro your retirement but the annual limit for cash ISA contributions is £20,000 during the tax year (April 6 to April 5).
The good news is that this amount can be saved in a single account or distributed across multiple.
It’s thought that even though around eight million savvy savers are currently utilising these accounts each year Chancellor of the Exchequer and Labour Party MP Rachel Reeves is believed to be considering whether to scrap the tax-free cash version of the ISA savings account.
Households across the UK are being warned that now is a better time than any to make use of an ISA as it can offer some protection against ‘hidden taxes’, as per the Daily Express.
According to experts at Hargreaves Lansdown, 56 per cent of new clients have actually opened a cash ISA in the last week and that deposits up 325 per cent in 2025 so far versus the same period in 2024.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said there were five hidden taxes that an ISA could be used to offset or prevent.
ISAs can be used to save on capital gains tax (CGT) paid on shares bought from a Sharesave scheme (SAYE) or Share Incentive Plan (SIP).
An ISA could also be used to protect from an unexpected CGT bill on a child’s bare trust.
A bare trust is defined by Gov.uk as an account ‘used to pass assets to young people’ and are usually looked after by someone else until the beneficiary is old enough.
However, when the child on the account turns 18, they could be hit with a hefty CGT bill is they make ‘significant gains’, says the Hargreaves Lansdown expert.
AIM ISAs are also currently potentially free of inheritance tax after two years so parents could use an ISA to avoid a whopping 60 percent tax bill from HMRC.
Those people who annually makes over £100,000 and want to protect themselves from 60 percent tax and losing free childcare, then pouring your earnings into an ISA is a no brainer.
The financial advisor reports that there is no CGT levied on investments placed in a savings ISA and that no income tax is paid on interest.
A high-earning parent who opts to shelter their savings within an ISA could mitigate the impact of the high-income child benefit charge (HICBC).
