From April 2027, savers will only be able to deposit £12,000 into Cash ISAs, reduced from the current £20,000 limit, under reforms first announced by former Chancellor Rachel Reeves and now being pursued by Prime Minister Andy Burnham's government. Households with savings exceeding £12,000 may face tax charges on interest earned above the Personal Savings Allowance.
Changes to Cash ISA limits
The reforms were initially unveiled by Reeves following years of speculation about cuts to the tax-free savings accounts. She described the move as an effort to encourage Britons to invest in the stock market rather than holding cash reserves, according to Yorkshire Live.
Reeves was removed from her position when former Prime Minister Sir Keir Starmer stepped down, but her successor John Healey will press ahead with the reforms. This means households with a certain amount of savings in Cash ISAs could be impacted.
Personal Savings Allowance and exemptions
Under the Personal Savings Allowance, savers can earn £1,000 in interest without incurring tax, though this falls to £500 for earners above £50,270 and £0 for those earning over £125,140. Those earning interest on cash held outside ISAs will be subject to tax charges.
One notable exemption applies to people over 65, who will be allowed to retain the full £20,000 annual limit. This exemption was welcomed by Martin Lewis, founder of Money Saving Expert, who had been lobbying for it.
Investment-focused ISAs and online hubs
Under the revised rules, savers can still deposit £20,000 a year into tax-free ISAs, but Cash ISAs will be capped at £12,000. Those wishing to use the full allowance will need to place the remaining £8,000 into a Stocks and Shares ISA instead.
Online hubs are to be established "to help people invest" in the UK, Reeves stated as she outlined the reforms. She 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."
Those who typically save more than this amount will need to seek alternative options before the changes are implemented, such as opting for Stocks and Shares ISAs, though any existing deposits will remain unaffected. Newly appointed Prime Minister Andy Burnham will be in office when the new regulations come into force in April 2027. He has also pledged to maintain the state pension triple lock and will honour Reeves' Income Tax exemption for state pensioners.
