Millions of savers across the UK are facing a significant reduction in the amount they can shelter from tax, after the Chancellor confirmed a major shake-up for cash ISAs.
What is Changing with Cash ISAs?
In the recent Budget, Chancellor Rachel Reeves announced that the annual tax-free allowance for cash ISAs will be cut. The current limit, which allows savers to deposit up to £20,000 each tax year without paying tax on the interest, will be reduced to £12,000.
This marks the first time the cash ISA allowance has been lowered since 2017. However, there is a crucial timeline for savers to note. This rule change will not take effect until April 2027, giving people time to plan.
Key Details and Exemptions for Savers
The government has stated that the new, lower limit is intended to encourage more people to consider investing in stocks and shares, rather than relying solely on cash savings.
Importantly, the reduction will not affect everyone. Pensioners aged 65 and over will be exempt from the change and will continue to benefit from the full £20,000 cash ISA allowance.
For those aged 64 and under, the new £12,000 limit will only apply to contributions made from April 2027 onwards. Any money already saved in a cash ISA up to that point is completely unaffected.
Expert Reaction and Financial Impact
Consumer finance experts have warned that the change could be a setback for households striving to build their financial resilience.
Nicola Morgan, a consumer finance expert at Confused.com, commented: "Cutting the Cash ISA limit will feel like a setback for households already trying to make their money go further, as having a smaller allowance makes it harder for people to grow their savings free from tax."
She added that the impact will be felt widely, noting: "It’s not just higher earners who will notice the impact, anyone steadily building a financial safety net or planning ahead for future costs may now find it harder to reach their goals under the lower limit."
For now, savers can continue to utilise the full £20,000 allowance, but are being advised to factor this future reduction into their long-term financial planning.
