Households with more than £12,000 in savings will be impacted by a new Cash ISA rule set to come into force under new Prime Minister Andy Burnham. Former Chancellor Rachel Reeves announced new rules on Cash ISAs following years of speculation about cuts to the tax-free savings accounts in what she said was a bid to get Brits investing in the stock market rather than sitting on cash reserves.
New Limits and Tax Implications
The new rules will mean that from next April, savers will only be able to deposit £12,000 into Cash ISAs, down from the current £20,000. Those who have more than £12,000 in savings face having to pay tax charges on savings interest instead, for any amount exceeding the Personal Savings Allowance.
The Personal Savings Allowance allows savers to earn £1,000 of interest without owing tax on it, though this drops to £500 for earners over £50,270 and £0 for earners over £125,140. Those earning interest on cash outside ISAs will then be hit by the tax charges.
Exemption for State Pensioners
One exemption is state pensioners. Over-65s (not all of whom are state pensioners, as state pension age is now 66, rising to 67), will be given a special exemption and allowed to keep a full £20,000 annual limit.
In her Autumn Budget, Reeves announced a long-anticipated and much-feared cut to Cash ISAs, despite objections from prominent financial campaigners like Martin Lewis. However, the MSE founder welcomed the exemption for older people, which he had been pushing for.
Investment Shift and Online Hubs
Under the new rules, savers will still be able to put £20,000 a year into tax-free ISAs like they can now, but Cash ISAs will be limited to just £12,000, instead of the full £20k. Those wanting to use the full £20k allowance will have to put the other £8,000 into a Stocks and Shares ISA instead. But state pensioners will be allowed to keep the full cash allowance, Ms Reeves said in her speech.
Online hubs will be set up, designed “to help people invest” in the UK, Rachel Reeves said as she set out reforms to the ISA system. The 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.”
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. New Prime Minister Andy Burnham will now be the one in charge when these new rules are put in place, starting in April 2027. Mr Burnham has also committed to keeping the state pension triple lock and will stick with Reeves' Income Tax exemption for state pensioners too.
