Chancellor Rachel Reeves announced major changes to ISAs in the autumn budget
The Government has provided an update for savers who will be affected by cuts to the ISA allowance. Chancellor Rachel Reeves announced in the Autumn Statement that the ISA allowance would be reduced for certain savers.
Now a Treasury minister has confirmed that more details will be announced in the coming months. Currently, you can put up to £20,000 annually into ISAs, which can be divided between cash ISAs and stocks and shares ISAs. However, from April 2027, the sum you’ll be able to place into cash ISAs will be capped at £12,000 per year.
You’ll still receive the remaining £8,000 allowance, but this must go into stocks and shares accounts. The fresh rules won’t affect those aged 65 and above, who will keep the existing allowance.
Conservative MP Wendy Morton questioned the Chancellor in a written question in Parliament about whether she had estimated how many people would be impacted by the changes, and the “demographic profile” of these savers. The MP also enquired if the Government has any intentions to introduce “alternative saving and investment incentives”.
‘Generous tax advantages’
Treasury minister Lucy Rigby delivered the Government’s response. She said: “ISAs incentivise saving and investment by providing generous tax advantages to individual taxpayers. Individuals can save up to £20,000 into an ISA each year, and any savings income received within an ISA is tax free.
“In addition, due to the Personal Savings Allowance and the Starting Rate for Savings, in 2025-26 around 85 per cent of people with savings income will pay no tax on that income.” She continued by outlining how the fresh ISA rules would impact savers.
The minister explained: “This policy will affect those aged under 65 from April 2027, but the overall Individual Savings Accounts (ISAs) limit will remain at £20,000 for all savers when the annual Cash ISA limit is set at £12,000. Savers can still use stocks and shares ISAs beyond the £12,000 up to £20,000.
“It will not affect existing cash ISA savings.” Ms Rigby also said there will be further announcements about changes to ISAs. She said: “A policy costing note for the package of measures was published alongside the Budget, including the changes to the ISA regime.
“Following a technical consultation, new ISA regulations will be laid, and a Tax Impact and Information Note will be published in the spring.”
Tax-free savings
A crucial advantage of ISAs is that all your interest earnings and investment growth stay tax-free, provided you remain within your annual allowance. You can also get tax-free interest on your other savings, within specific allowances.
There is a starter rate for savings once you begin earning income tax, which kicks in when your income rises above the personal allowance of £12,570. The starter rate permits you to earn £5,000 interest tax-free, but this diminishes for each £1 you earn above the personal allowance, meaning it vanishes completely once your income reaches £17,570 or more.
However, basic rate taxpayers can also pocket up to £1,000 a year in interest without paying tax, which drops to £500 for those on the higher income tax bracket. Those on the additional get no savings allowance and have to pay tax on all their interest earnings.
