The Cash ISA annual limit will be cut from £20,000 to £12,000 from April 2027, the Treasury has confirmed, with state pensioners and over-65s exempt from the reduction.
Former Chancellor Rachel Reeves announced the changes to Cash ISAs following years of speculation about cuts to the tax-free savings accounts, in what she said was a bid to encourage Brits to invest in the stock market rather than sitting on cash reserves. After former Prime Minister Sir Keir Starmer stood down, the Chancellor was removed from her role, but replacement John Healey will stick with Reeves' changes, the Treasury confirmed to the i Paper this week.
New limits and exemptions
The new rules mean that from next April, savers will only be able to deposit £12,000 into Cash ISAs, down from the current £20,000. Any extra money saved outside of ISAs could face tax on it. The Personal Savings Allowance allows savers to earn £1,000 of interest without owing tax, though this drops to £500 for earners over £50,270 and £0 for earners over £125,140.
One exemption applies to state pensioners. Over-65s (not all of whom are state pensioners, as the state pension age is now 66, rising to 67) will be given a special exemption and allowed to keep the full £20,000 annual limit. In her last Autumn Budget, Reeves announced the long-anticipated cut to Cash ISAs, despite objections from prominent financial campaigners like Martin Lewis. However, the Money Saving Expert founder welcomed the exemption for older people, which he had been pushing for.
Investment-focused ISA changes
Under the new rules, savers will still be able to put £20,000 a year into tax-free ISAs, but Cash ISAs will be limited to £12,000 instead of the full £20,000. Those wanting to use the full allowance will have to put the other £8,000 into a Stocks and Shares ISA instead. At one point, rumours suggested the limit could be set as low as £10,000.
Online hubs will be set up, designed “to help people invest” in the UK, Reeves said as she set out reforms to the ISA system. The former Chancellor told MPs: “From April 2027, I will reform our ISA system, keeping the full £20,000 allowance while designating £8,000 of it exclusively for investment, with over-65s retaining the full cash allowance. And thanks to our changes to financial advice and guidance, banks will be able to guide savers to better choices for their hard-earned money. Over 50% of the ISA market – including Hargreaves Lansdown, HSBC, Lloyds, Vanguard and Barclays – have signed up to launch new online hubs to help people invest here in Britain.”
Impact and next steps
Savers who would usually exceed that amount will need to find alternatives before the change is put in place, such as using Stocks and Shares ISAs, but the change will not affect existing deposits. Andy Burnham's Chancellor John Healey has not yet revealed the full extent of his spending plans or their costings, but the Budget is coming in just two weeks, on October 28. The Chancellor is under mounting pressure from gilt and bond markets as the cost of US action in the Middle East starts to impact the UK's cost of borrowing, reducing vital headroom.
However, the Chancellor is not going to pull the plug on Reeves' ISA plans, which are still scheduled to go into effect from April 6, 2027, according to the Treasury. Burnham has also committed to keeping Reeves' Income Tax exemption for state pensioners.
