Tax allowance changes have "little effect" on ISA demand

In the final Budget of the last Parliament, George Osborne announced the first £1,000 of income on savings would be free from income tax from the start of the next financial year in 2016, prompting questions about the future of ISAs, which already pay their interest tax-free.

However, since the start of the current 2015/16 tax year the most popular of Leeds Building Society’s ISAs was a two year fixed rate deal which matures in 2017, more than a year after the change to the savings allowance. The Society also saw strong demand for its three year fixed rate ISA.

Jaedon Green, Leeds Building Society’s General Manager – Product Development, said:

“After the Chancellor’s announcement in March about changing the tax allowance for savings interest, consumers might have been expected to focus on instant access or one year products in readiness for moving their money to a non-ISA account when the changes come into effect.

“However, we’re still seeing strong demand for ISAs, particularly those for fixed terms of two years or longer.

“While the majority of savers will benefit from the tax changes coming into force in April, it seems that plenty of people still want a specific account which pays interest tax-free if they feel the return is competitive.”