Chancellor John Healey is reported to be set to announce a reversal of the planned cut to the cash ISA allowance in his Budget today. The cash ISA allowance is currently set at £20,000 a year but was due to be slashed to £12,000 from next April for under-65s. According to the FT, the Chancellor is set to scrap this in his Budget, meaning the cash ISA limit will remain as it is for savers.
Background to the planned cut
The cutting of the cash ISA allowance was announced in the 2025 Budget by then-Chancellor Rachel Reeves, with the government hoping that it would encourage younger savers to invest in the stock market instead. Over-65s were not affected by the cut, and their cash ISA allowance was always going to remain at £20,000. Any interest earned on money saved into an ISA account is free from tax.
Outside of ISA accounts, basic rate taxpayers pay 20% tax when they earn more than £1,000 a year in interest. Higher rate taxpayers pay 40% tax when they earn more than £500 in interest a year. Additional rate taxpayers have to pay 45% on any savings interest they make.
Reaction to the reported reversal
Tom Selby, director of public policy at AJ Bell, said: “While the central aim of encouraging more people to invest for the long-term was the right one, the route Healey’s predecessor chose to achieve this was painfully convoluted, hardening the border between short-term saving and long-term investing and adding overwhelming complexity – not to mention a tax charge – into the system in the process.
“To make matters worse, by creating a ‘buy now while stocks last’ environment for the full £20,000 Cash ISA allowance until April next year, in the short-term the policy was all-but-guaranteed to achieve the opposite of the stated aim of boosting retail investing, as people piled into cash while they could still do so under the current allowance.”
