Chancellor Rachel Reeves has confirmed new rules that will reduce the tax-free cash ISA limit for millions of savers from April 2027. The current £20,000 annual allowance will be cut to £12,000 for households, while pensioners aged 65 and over will retain the full £20,000 limit.
What Are the New ISA Rules?
From April 2027, the annual cash ISA allowance will drop from £20,000 to £12,000 for savers under 65. However, the overall ISA allowance remains at £20,000, meaning non-pensioners can still invest up to £8,000 in stocks and shares ISAs. The government aims to encourage more investment in the stock market to boost economic growth.
Impact on Pensioners
Pensioners are protected from these changes. Those aged 65 and over can continue to deposit up to £20,000 into cash ISAs tax-free. This exemption aims to safeguard older savers who may rely on cash savings for retirement income.
Expert Reaction
Rob Morgan, chief investment analyst at Charles Stanley Direct, commented: "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. Older savers will retain the full £20,000 cash allowance."
He added: "Alongside this, the Chancellor is reportedly planning to introduce a 22% charge on interest earned on cash held within stocks and shares ISAs – effectively aligning with the basic rate of tax on savings from next tax year. The reforms aim to nudge savers towards investing rather than holding cash – a laudable aim. However, the suite of 'anti-circumvention' measures risks reversing much of the simplification of ISAs achieved in 2014, replacing it with a more restrictive and complex landscape."
Advice for Savers
Non-pensioner households are advised to make the most of their current ISA allowance before the rate is slashed in 2027. The changes are part of broader efforts to shift savings from cash to investments, but critics warn they could complicate the ISA system.
