Money saving expert Martin Lewis has outlined a crucial strategy for UK households to build a substantial tax-free savings pot, even after the government confirmed it will slash the annual Cash ISA allowance.
What are the ISA changes?
In the Autumn Budget earlier this month, Chancellor Rachel Reeves announced a significant shift for Individual Savings Accounts (ISAs). The key change is that from April 2027, the amount you can save tax-free into a Cash ISA each year will be reduced from £20,000 to £12,000.
The remaining £8,000 of the overall ISA allowance is being moved exclusively into Stocks and Shares ISAs. The government stated this move aims to encourage more investment in British businesses. It is important to note that anyone aged 65 and over will not be affected and will retain the full £20,000 Cash ISA allowance.
Martin Lewis's "piece of cake" explanation
Clarifying widespread confusion, Martin Lewis emphasised that the total annual ISA subscription limit remains £20,000 for those under 65, even after 2027. The change is simply in how that allowance can be split between cash and stocks.
"The ISA limit is £20,000 and will remain at £20,000 even for under-65s after 2027," Lewis explained. "Which means you can put £20,000 in a shares ISA, you could also choose to put some in cash."
He illustrated that if you put £1,000 in a Cash ISA, it reduces your available Stocks and Shares ISA allowance by £1,000, as the £20,000 total is a shared pot. From 2027, the maximum you can allocate to cash will be £12,000, with the remaining £8,000 available for investment.
"So you could have £12,000 in cash, and £8,000 in shares. You don’t have to put the money in shares," Lewis added, noting that savers could simply choose to only put £12,000 into cash.
How to build a £92,000 tax-free cash pot
The core of Lewis's advice hinges on a vital rule: the new limits only impact new money paid in. Existing ISA savings and their tax-free status are completely protected.
Lewis demonstrated how savers can accumulate a large sum by consistently using their annual allowance over several years. "Let’s say you put £20,000 in two years ago, and then you put £20,000 in last year, that’s £40,000... then £20,000 in next tax year that’s £80,000, and then the next year it’s dropping... to £12,000," he said.
By following this pattern, a saver could have £92,000 in principal alone over a five-year period, not including any compounded interest earned on the balances. This explains how some individuals have built up hundreds of thousands in their Cash ISAs.
All existing ISA funds can also be transferred between providers without affecting your annual allowance. Lewis stressed this point to reassure savers that their past efforts are secure and flexible for the future.
