Chancellor Rachel Reeves has confirmed major changes to cash ISA rules that will affect millions of savers across the UK. The annual limit for cash ISAs will be reduced from the current £20,000 to £12,000 for savers under the age of 65.
New ISA Allowance Structure
While the overall ISA allowance will remain at £20,000, the distribution will change. Savers under 65 can place up to £12,000 in a cash ISA and the remaining £8,000 in a stocks and shares ISA. This adjustment aims to encourage more investment in stocks and shares, which the Treasury believes will boost the economy.
Impact on Savers
The change means that the majority of savers will have less tax-free interest available through cash ISAs. However, pensioners are protected and will continue to enjoy the full £20,000 limit for cash ISAs. The new rules are set to take effect from April 2027.
A Treasury spokesperson stated: "We are reforming the cash ISA to encourage more people to invest in stocks and shares – which have historically performed better than cash savings – and we have retained the generous £20,000 tax-free limit. These changes will make people better off and will not require anyone to move existing savings from their cash ISA. The vast majority of savers will continue to pay no tax on their savings."
It is reported that stocks and shares savers could face significant tax charges under the new rules. The Treasury and HMRC are working with the industry on detailed regulations and will provide further updates in due course.
