Chancellor John Healey has confirmed that the government will not go ahead with a planned cut to the ISA allowance, keeping the tax-free limit at £20,000 per year.
In his Budget statement on Wednesday, Mr Healey said the ISA allowance will not be reduced from £20,000 to £12,000 next April as previously planned. The change had been announced by former chancellor Rachel Reeves at last year's Budget, set to take effect in April 2027 for savers aged under 65, as part of efforts to encourage investment in the stock market.
Reversal of the planned ISA cut
The proposed reduction was widely criticised for affecting a well-understood and well-liked savings product and was seen as unlikely to tempt savers to put money into riskier investments. ISAs, or individual savings accounts, are exempt from tax on interest, as well as capital gains and income taxes.
Ahead of the Budget, it was reported that Mr Healey was considering reversing the move, believing the allowance cut was the wrong tool to persuade Brits to invest more in stocks and shares.
Starter ISA for first-time investors
In his statement to the House of Commons, Mr Healey confirmed the limit will remain at £20,000 and said he would work with the sector to create a new “starter ISA” to reward first-time investors.
He told the Commons: “88% of people will pay no more tax on their savings, and I am taking a new approach today to encourage people on ordinary incomes to save and to invest.
“I will not go ahead with the cut to the tax-free amount that people can put into a cash ISA. The limit will stay at £20,000 per year, tax-free, for people of all ages and to make investment accessible. I will work with the sector to create a new ‘Starter ISA’ to reward first-time investors.”
Energy bills support and other measures
Mr Healey also unveiled a £2.6 billion energy bills support package for poorer households, funded by hiking taxes on banks. The scheme will mean around 20 million households in council tax bands A-D will get £100 from the government this winter to help with bills.
Ahead of the Commons statement, Mr Healey announced that standing charges on gas bills will be scrapped from next year as part of his effort to ease the cost-of-living squeeze.
He also announced an increase in gambling taxes to pay for business rates relief for high street firms, saying it would mean 70,000 businesses would be taken out of paying rates altogether, “meaning half of our shops, restaurants and gyms will now pay no business rates at all”.
