'Rampant speculation' about the potential increase in CGT rates in the upcoming Budget has promoted more people to direct their savings to ISAs before such changes could come into force.
Investment platforms have reported significant rises in the number of clients either increasing their contributions to their ISAs, or maxing out their £20,000 annual allowances ahead of the Autumn Budget on 30 October.
Hargreaves Lansdown and AJ Bell told Investment Week there has been a marked increase in activity among their ISA clients.
HL reported a 39.6% rise in the number of investors maxing out their Stocks & Shares ISAs in the current tax year compared to the previous one.
Similarly, AJ Bell said that in September alone there had been a 47% increase in ISA subscriptions and the number of Bed and ISA transactions has doubled compared with September 2023.
Such a phenomenon has also been highlighted by Bestinvest and interactive investor.
The Evelyn Partners platform posted a 156% surge in ISA contributions last month compared to the same time last year, while numbers for the first 11 days of October exceeded those of the full month in 2023 by 106%.
Bestinvest argued that "fears" surrounding Chancellor Rachel Reeves' reported raid on capital gains tax (CGT) is "fuelling investor appetite" for ISAs, since the products allow them to invest up to £20,000 tax-free every year.
Usually, such increases in ISA activity are recorded at the end of a tax year, when investors rush to make the most of their tax-free allowances before they expire, but "rampant speculation" about the potential increase in CGT rates in the upcoming Budget has promoted more people to direct their savings to ISAs before such changes could come into force, Bestinvest said.
interactive investor noted a similar spike, recording a 44% increase in Bed & ISA transactions between 1 July and the end of September, while the number of its clients maxing out their annual allowance rose by 65% over the same three-month period.
Myron Jobson, senior personal finance analyst at interactive investor, said: "Fears of a less generous investment taxation regime have provided extra impetus for investors to do what they should already be doing: making the most of the tax-efficient ISA wrapper, which shield gains and income generated from investments from tax."
Alice Haine, personal finance analyst at Bestinvest, echoed Jobson, arguing investors are being "proactive" by shielding their assets held outside a tax wrapper.
Haine said investors can do so by selling investments "held in a taxable environment", crystallise the gain, and either use the existing £3,000 annual CGT exemption or trigger CGT at current rates – 10% and 20% for basic and higher-rate taxpayers, respectively.
The shares can then be repurchased within an ISA, protecting those assets from CGT liabilities in the future.
"With the possibility that a new CGT regime could take effect immediately following the Budget rather than from the start of a new tax year, a scenario seen following George Osborne's June 2010 Budget, it is understandable that investor activity around ISAs ramped up in September," Haine said.
"The good news is that even if CGT remains untouched in the Budget, savers that have used up more of their £20,000 tax-free allowance will be in a better tax position."
Last month, several reports speculated that CGT rates may have increased to as high as 39%, something that Prime Minister Keir Starmer later dismissed as being "wide of the mark".
CGT is but one of the speculated areas the upcoming Budget is rumoured to impact, following claims by the chancellor that the current government inherited a £22bn fiscal ‘black hole' from its predecessors, leading the prime minister to warn that "painful" choices will have to be made on 30 October to get the country back to growth for the long term.
