The government led by Prime Minister Andy Burnham has confirmed major changes to bank account rules, including a reduction in the cash ISA allowance from £20,000 to £12,000 for working-age savers, ahead of the Budget 2026.
Chancellor John Healey will deliver his first Budget in a speech to MPs in the House of Commons on Wednesday, October 28. The financial decisions come amid a difficult domestic economic situation, worsened by international market turmoil caused by the Iran war.
Cash ISA allowance changes
From April 2027, the tax-free cash ISA rate will be cut from £20,000 to £12,000. The change will apply to working-age savers under 65, who will only be able to invest up to £12,000 into cash ISAs. UK pensioners will retain the existing £20,000 limit as the government continues to protect them.
The change means working-age families will not be able to earn as much in tax-free interest on their ISA accounts. Interest earned on cash ISAs is not taxed, but the reduced allowance will affect thousands of people living in the UK.
Impact on savers and investment
While interest earned on these accounts will be hit with a 22% charge, savers will still be able to put the other £8,000 in stocks and shares accounts. The government is hoping that people will be more likely to invest through stocks and shares.
Rob Morgan, chief investment analyst at Charles Stanley Direct, said: "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."
Money Saving Expert explained: "Savers who hold cash inside stocks and shares ISAs will be charged 22% on any interest earned on that cash from 6 April 2027, the Government has confirmed. The charge is designed to stop people using investment ISAs as a workaround to hold cash when the cash ISA limit is cut from £20,000 to £12,000 a year for under-65s from the same date."
Details of the change are expected to be shared during the Budget, with former Chancellor Rachel Reeves previously announcing the plan.
