Tax raid on savers and investors tops £15.5bn

The Budget documents show there are £15.5bn of tax rises on savers and investors over the next five years, according to analysis by AJ Bell.

But the firm said most of it is back-loaded, giving people a chance to get ahead of the tax hikes.

Capping salary sacrifice is set to be the biggest earner for the Treasury, making the tax authorities £7.3bn over the next five years.

Much of it will be paid by employers, but they may choose to pass some of that, if not all of it, onto employees by depressing pension contributions and wages.

The other big money maker for the Chancellor is hiking dividend tax by 2%, which is set to cost business owners and investors £5.1bn over the next five years.

And there’s no escape from the new tax raid through investing in property or savings. The 2% hike to tax on property and savings income raises about £3bn in total for the Exchequer over the forecast period.

The savings tax hike is also compounded by the fact the Cash ISA allowance has been cut to £12,000 for under 65s from April 2027. AJ Bell said the main Budget costings don’t reveal how much the Cash ISA reduction will make for the taxman because it has been lumped together with extending the Help to Save scheme under the heading ‘Supporting Savers’. Taken together these measures are net positive for savers, but Cash ISA savers will find themselves on the negative side of the ledger, the firm said.

Source: HM Treasury

Laith Khalaf, head of investment analysis at AJ Bell, said: “The Budget documents reveal the chancellor is set to take £15.5bn from savers and investors over the next five years, through a series of measures which will help to pay for shoring up the government’s financial position, while also delivering the welfare policies it has decided to introduce.

“Among the biggest tax levers the government is pulling in this sphere are the cap on salary sacrifice for pension schemes and increasing the tax on dividends. However, the good news is that the bulk of the tax take isn’t hitting right away, giving savers and investors time to get their houses in order.”