Households with £20,000 in cash ISAs are being warned not to lose their tax-free allowance as new rules come into effect. Chancellor Rachel Reeves has announced a major shake-up of cash ISA rules, reducing the annual limit from £20,000 to £12,000 for savers under 65. The change takes effect in April 2027, meaning this is the last tax year most households can take advantage of the higher limit.
What the Changes Mean for Savers
The cash ISA tax-free limit is being cut in less than 12 months for the majority of savers. The rate will be slashed from £20,000 to £12,000 for everyone aged below 65. This is a blow to savers, as they will not be able to earn as much interest before being taxed. Experts advise affected savers who have sufficient savings to use the full £20,000 allowance before it is lost, to earn as much interest as possible before the limit drops.
Record Number of Cash ISA Deals
The change comes as rivalry among banks and building societies heats up. According to Moneyfacts data, there were 712 cash ISA accounts available on April 1, 2026, the highest number ever recorded. Average instant-access cash ISA rates have also climbed from 2.61% to 2.73% AER, meaning there are plenty of options for savers wanting to build their money before next April.
Fiscal Drag and Tax Bands
More households are wanting to shield their savings from the taxman due to fiscal drag, which has moved them into new tax bands. Tax bands have been kept frozen while incomes keep increasing, potentially leaving someone suddenly paying 40% tax when it was previously 20%. This makes the ISA allowance even more valuable.
Protection for Pensioners
Pensioners have been protected from the ISA rate cuts. Over-65s will still be able to take advantage of the £20,000 rate after next year, providing some relief for older savers.
