Chancellor Rachel Reeves announced changes to ISAs in the Autumn Budget
Experts have warned that changes to ISA allowances will hit those who have prudently grown their savings. An announcement in the Budget last month said the £20,000 ISA allowance will be effectively reduced so that only £12,000 of this can be allocated to either cash ISAs or stocks and shares ISAs.
The remaining £8,000 will have to be invested in stocks and shares ISAs. The aim of this change is to motivate savers to invest more.
These new allowances will take effect from April 2027. However, some critics argue that limiting the amount you can save in cash ISAs will unjustly penalise responsible savers.
Henrietta Grimston, financial planner at retirement planning group Saltus, stated: “Clients with large cash ISA holdings aren’t typically chasing high returns, they are prioritising security, flexibility and peace of mind.
“For many, cash ISAs offer a simple and low-risk way to manage their savings without worrying about market volatility. Reducing the allowance risks penalising these sensible savers, making it harder to build tax-efficient pots for the future.”
Ms Grimston warned that those nearing retirement could be particularly affected by the changes “with tax taking a greater bite out of any growth”. She explained: “This could also reduce the overall efficiency of their retirement savings plans, as less can be sheltered in a tax-free wrapper, meaning they may need to save more just to reach the same target.”
“It also risks pushing individuals into more complex tax situations, where they may need to submit tax returns for the first time, adding administrative stress and potentially costly mistakes.” Savers aged over 65 will not be subject to the new allowance rules and will keep the current ISA allowance.
Improving ISAs
The financial expert urged ministers to take decisive action to streamline ISAs, highlighting one scheme in particular that needs an overhaul – the Lifetime ISA. Under current rules, savers can stash away up to £4,000 annually and receive a 25 percent Government bonus on their contributions.
The pot can either help fund a first property purchase or be withdrawn once your turn 60. Ms Grimston said: “If the Government were to consider changes to any ISA product, a positive move could be to make the LISA more flexible and better suited to the realities of people’s lives as their circumstances evolve.
“A wider review of ISA rules – particularly for more targeted products like the LISA and the Innovative Finance ISA – would also be a welcome step in helping savers better navigate their options.”
