Chancellor Rachel Reeves has confirmed a significant reduction in the annual tax-free Cash ISA allowance, sparking concern among millions of savers across the UK. The current £20,000 limit will be slashed to £12,000 for individuals under the age of 65, with the changes set to take effect from 2027.
Public Backlash and Survey Findings
The announcement has been met with widespread disapproval. A survey of 563 Cash ISA holders, commissioned by Skipton Building Society, revealed that 67% have reacted negatively to the Chancellor's plan. Furthermore, three-quarters of those surveyed believe the government should be encouraging saving, not placing restrictions on it.
The data highlights deep-seated frustration, with 73% of respondents stating the move diminishes the overall advantage of holding a Cash ISA. More than half (53%) feel the policy is unfair on those who have carefully planned their finances around the existing £20,000 cap. As a result, almost half of savers anticipate they will need to reconsider their savings strategy, with many looking towards investments or increasing workplace pension contributions.
Expert Strategies to Safeguard Your Savings
In response to the looming changes, Alex Sitaras, head of savings and partnership products at Skipton Building Society, has issued crucial guidance for savers aiming to protect their money from tax.
His first and most urgent recommendation is to act quickly and fully utilise the current £20,000 allowance before it is reduced. Savers should make the most of the existing limit while it is still available.
Another key strategy is to diversify across different ISA types. While the Cash ISA allowance is being cut, the overall annual ISA limit remains at £20,000. This means you can split your allowance between a Cash ISA and a Stocks and Shares ISA. This approach helps spread risk and keeps a larger portion of your money protected from tax.
Mr Sitaras also reminded savers not to overlook the Personal Savings Allowance. This allows basic-rate taxpayers to earn up to £1,000 in interest tax-free each year. Based on a 4% interest rate, a basic-rate taxpayer could hold £25,000 in a standard savings account before incurring any tax.
Alternative Tax-Efficient Savings Options
For those exploring other avenues, several options exist. Premium Bonds permit individuals to hold up to £50,000 tax-free, with returns coming from monthly prize draws instead of guaranteed interest.
Families might also consider Junior ISAs as a method for intergenerational wealth transfer. Parents or guardians can deposit £9,000 per child annually into these accounts, completely tax-free, though the money legally belongs to the child and becomes accessible to them at age 18.
Alex Sitaras commented on the situation, stating: "Slashing the cap so sharply means many more people under 65 will end up paying tax on savings that were previously protected, so making the right moves now is vital." He emphasised that while Stocks and Shares ISAs can be excellent for long-term growth, decisions should be based on personal financial goals, not just the new rules.
The survey also indicated a strong demand for professional advice, with 52% of savers believing it will be important to seek guidance to navigate the changes effectively.
