Chancellor Rachel Reeves has confirmed significant changes to Individual Savings Accounts in her Autumn Budget, with the Cash ISA allowance facing substantial reductions for millions of savers starting April 2027.
What's Changing for ISA Savers
The current £20,000 annual ISA allowance will undergo a major restructuring under the new measures. The Cash ISA limit will be reduced to £12,000 from its current level, while the overall ISA allowance remains at £20,000. This means savers could potentially allocate £12,000 to a Cash ISA and the remaining £8,000 to a stocks and shares ISA.
However, there's significant protection for older savers. Those aged 65 and over will be completely exempt from these changes and will continue to enjoy the full £20,000 Cash ISA allowance each tax year.
Tax Increases on Savings Interest
In a double blow for savers, the government has also announced increases to the tax rates applied to savings interest from April 2027. Basic-rate taxpayers will see their tax rate on savings interest above the £1,000 personal allowance rise from 20% to 22%.
Higher-rate taxpayers face an increase from 40% to 42% on savings interest exceeding their £500 allowance, while additional rate taxpayers will see their rate jump from 45% to 47% on all savings interest.
Industry Reaction and Concerns
The building society sector has expressed strong opposition to the changes, warning of potential negative consequences for both savers and the mortgage market. Harriet Guevera, Chief Saving Officer at Nottingham Building Society, described the decision as "a sucker punch for savers and deeply disappointing for lenders."
She emphasised that "two thirds of our Cash ISA customers have used the full £20,000 allowance so far this year" and cautioned that these aren't wealthy individuals but ordinary families working hard to save for their futures.
Critics have raised concerns that reducing Cash ISA limits could impact mortgage availability, as building societies rely heavily on deposits like cash ISAs to fund their lending activities. Some also question whether the changes will effectively encourage investment culture or simply restrict choice for risk-averse savers.
Understanding ISA Basics
Individual Savings Accounts remain one of the most popular tax-efficient savings vehicles in the UK, with 9.9 million cash ISA accounts receiving contributions in the 2023/24 tax year alone. The key advantage of ISAs is that all interest earned remains completely tax-free, unlike standard savings accounts where tax applies above personal savings allowances.
Basic-rate taxpayers currently enjoy a £1,000 personal savings allowance, higher-rate taxpayers have a £500 allowance, while additional rate taxpayers receive no allowance at all. The main ISA types include cash ISAs, stocks and shares ISAs, Lifetime ISAs with a £4,000 annual limit, and innovative finance ISAs.
The changes announced today represent the most significant shake-up to ISA rules in recent years and will require careful financial planning for millions of UK savers approaching the 2027 implementation date.
