In a significant move for UK savers, Chancellor Rachel Reeves has announced a major reduction to the annual tax-free allowance for Cash ISAs.
The current limit of £20,000 will be cut to £12,000, fundamentally changing how much individuals can save without incurring tax. The new rules are designed to encourage more people to consider investing in Stocks and Shares ISAs to help stimulate economic growth.
Timeline and Key Exemptions
Savers have been granted a substantial period of adjustment, as the change will not come into effect until April 2027. This provides over a year to maximise contributions under the existing, more generous limit.
A crucial exemption to the new rule has been confirmed for pensioners. Individuals aged 65 and over will retain the full £20,000 Cash ISA allowance, a measure aimed at protecting those in or nearing retirement.
Industry Reaction and Saver Impact
The announcement has drawn a mixed response from finance experts. Susan Allen, chief executive at Yorkshire Building Society, expressed measured relief.
"While we’re disappointed to see the allowance reduced, we welcome the fact that the Chancellor listened to calls from us and the wider mutual sector not to cut it dramatically," Allen stated. She emphasised that retaining a meaningful limit is vital for savers and economic stability, and highlighted the importance of secure options like Cash ISAs for the over-60s, only one in ten of whom would consider stocks and shares.
Consumer finance expert Nicola Morgan from Confused.com pointed to the wider implications for household budgets. "Cutting the Cash ISA limit will feel like a setback for households already trying to make their money go further," she said, noting that the lower threshold will make it harder for many to build a financial safety net tax-efficiently.
What the Change Means for You
From April 2027, savers under 65 will face a new reality. Anyone wishing to shelter the full £20,000 from tax will need to place the remaining £8,000 into a Stocks and Shares ISA. This shift represents a clear government push towards investment, though it introduces an element of risk that may not be suitable for all, particularly those prioritising the security of their capital.
