Budget warning as savers could still face higher HMRC tax bill

Savers hoping Chancellor Rachel Reeves will not increase income tax in the Autumn Budget may still find themselves paying more tax. There have been reports that Labour is considering a hike in income tax in the Autumn Statement, scheduled for November 26. However, even if Chancellor Rachel Reeves opts to maintain the current tax rate, some savers could see their tax bills rise. Jeremy Cox, head of Strategy at Coventry Building Society, said: "Our members, particularly those who are retired and on fixed incomes, will be relieved if income tax rates are not increased later this month. "But if income tax thresholds are frozen for longer and cash ISA allowances are reduced, many could end up paying more income tax anyway, including on their cash savings." At present, you can deposit up to £20,000 a year into ISAs, with any interest earnings or investment growth within an ISA being tax-free. There have been reports that the Chancellor might introduce a £4,000 cap on cash ISA savings, as a way to encourage people to invest more. Mr Cox warned that even before any changes in the Budget, many people face increasing tax bills in the future. He said: "With income tax thresholds frozen, many more people were already in line to be higher rate taxpayers next year." Moving into the higher rate also means you could pay more tax on your savings. Those on the basic rate for income tax can earn up to £1,000 a year in interest tax-free, aside from your tax-exempt ISA savings. But once you move to the higher rate, this is cut in half to just £500. This means you could pay an extra £200 in tax if your interest earnings were £1,000 or more. Derence Lee, chief finance officer at ISA provider Shepherds Friendly, warned savers not to act rashly ahead of any changes in the Budget. He said: "Acting on speculation alone can carry risks. Staying informed and reviewing your current savings, pensions, and investments to understand their tax-efficiency can help you make considered decisions. "Frozen thresholds may result in some individuals paying higher rates of tax, but the impact will vary depending on individual circumstances. Once the budget is announced, take time to digest the details before making any major financial decisions." He explained that speaking to a financial adviser may be helpful if you're uncertain about what steps to take following any policy announcements. Mr Lee discussed what changes there could be in the Autumn Statement: "Areas such as income tax thresholds, capital gains, inheritance tax, and pension reliefs could be under review as the Chancellor considers ways to manage public finances and support economic growth. "There may also be adjustments to allowances, ISA limits, or pension reliefs as part of wider fiscal measures."