Millions of savers will face reduced tax-free interest earnings as the cash ISA annual allowance is cut from £20,000 to £12,000 for working-age households under 65, with the change taking effect from April 2027. The overhaul, first announced by former Chancellor Rachel Reeves, is expected to be pressed ahead by Andy Burnham and new Chancellor John Healey.
What the ISA changes mean for savers
The Treasury is stepping in to reduce how much savers can keep in cash ISAs, the accounts where interest earned is tax-free. Under the new rules, people under 65 will only be able to put up to £12,000 into cash ISAs each year, down from the current £20,000 limit. This will impact many households with over £10,000 in ISA accounts, who may now need to reconsider how best to store their savings.
Pensioners are protected from the change, with older savers retaining the full £20,000 cash allowance. The overall ISA allowance will remain at £20,000, meaning savers can still put the other £8,000 into stocks and shares accounts, but any interest earned on those accounts will be hit with a 22% charge.
Government aims to boost investment
The policy is designed to encourage more investment in stocks and shares and boost the economy. Rob Morgan, chief investment analyst at Charles Stanley Direct, said: "From April 2027, the annual cash ISA allowance will be cut from £20,000 to £12,000 for those under 65, while the overall ISA allowance will remain at £20,000."
Money Saving Expert explained: "Savers who hold cash inside stocks and shares ISAs will be charged 22% on any interest earned on that cash from 6 April 2027, the Government has confirmed." The charge is intended to stop people using investment ISAs as a workaround to hold cash when the cash ISA limit is cut from £20,000 to £12,000 a year for under-65s from the same date.
Impact on households with substantial savings
Households with savings exceeding £10,000 in cash ISAs will feel the impact most acutely, as they will no longer be able to shield as much of their interest from tax. The change means savers will not be able to earn as much in interest on their tax-free accounts, prompting many to reassess their savings strategies ahead of the April 2027 deadline.
The Treasury's move represents a major overhaul of savings rules that have existed for years, with the aim of shifting more money into investments. Savers affected by the change will still have the option to place up to £8,000 in stocks and shares accounts, but must factor in the 22% charge on any interest earned on cash held within those accounts.
