HM Treasury has issued a formal response to calls for a new type of Individual Savings Account (ISA) for UK households, rejecting the proposal for a 'charity ISA' while confirming major changes to the cash ISA allowance. From April 2027, the annual cash ISA subscription limit will be cut from £20,000 to £12,000, as announced by Chancellor Rachel Reeves.
Liberal Democrat MP Proposes Charity ISA
Liberal Democrats MP Sarah Dyke asked Chancellor Reeves whether she had considered introducing 'charity ISAs' to provide long-term funding for the charity sector. In a written response, Treasury minister Rachel Blake outlined the government's position, stating that existing ISA products already support charitable giving.
Blake wrote: 'The Government already offers a range of tax advantaged savings accounts (ISAs) that are well placed to support individuals to donate the capital and/or the growth to a charity of their choice.' She added that Gift Aid provides over £2.5 billion in tax relief annually, enabling charities to claim a basic rate top-up on eligible donations.
Blake concluded: 'The Government keeps all taxes and reliefs under review, and we remain committed to ensuring charities get the most out of the existing system, and to improving that system where we can.'
Cash ISA Allowance Cut Confirmed
The Chancellor confirmed the reduction in the cash ISA limit from £20,000 to £12,000 per year from April 2027—the first cut to the cash ISA allowance since 2017. The government said the change aims to encourage more people to invest in stocks and shares rather than holding cash.
An ISA is a tax-free savings account where interest is not subject to income tax. Currently, savers can contribute up to £20,000 each tax year into a cash ISA or split the allowance across different ISA types. The new limit will apply only to cash ISAs; the overall £20,000 ISA allowance remains unchanged for stocks and shares ISAs.
Martin Lewis Reacts to ISA Changes
Financial expert Martin Lewis commented on the policy, acknowledging its logic while expressing reservations. 'There's logic in here based on the policy aims. While I would've preferred a carrot, not stick approach – this isn't as bad as it could've been, £12,000 per year is still a reasonable whack for many people,' he said.
Lewis noted the stated aim was not to raise revenue but to encourage young people to invest rather than save, both for the economy and because investments typically outperform cash over time. He added that he had met with the Chancellor weeks earlier and pointed out that a blanket cut would be perverse, as reducing cash ISA limits for older people would not encourage younger people to invest.
'So, the carve out for over-64s makes total sense and I'm pleased she listened,' Lewis said. He called for better investment education, easier access to guidance, and improved investment incentives for young people alongside the policy change.
Exemption for Over-64s
The government confirmed that savers aged 64 and over will be exempt from the reduced cash ISA limit, allowing them to continue contributing up to £20,000 per year. This exemption addresses concerns that older savers, who often prefer cash savings for stability, would be unfairly penalised.
The Treasury's response underscores the government's focus on rebalancing savings habits and supporting investment, while maintaining existing tax reliefs for charitable giving through Gift Aid. The changes are set to take effect from the 2027/28 tax year.
