Rachel Reeves slashes money ISA restrict as a part of Budget – what it’s worthwhile to know
However, over 65s won’t be affected by the change
Brits will be limited on how much they can save in a cash ISA following a new cap put in place by the Chancellor. In today’s Budget announcement, Rachel Reeves confirmed the cash ISA limit will drop from £20,000 to £12,000.
This limit will come into force from April 6, 2027. It is thought this move will encourage more people to invest rather than only saving in cash.
But it will only affect new money being put in – not money already in ISAs. It also won’t apply to people over the age of 65.
It is important to note that the full ISA limit of £20,000 is not being reduced. It’s just the cash ISA limit.
As explained by The Independent, this means you will still be able to utilise the additional £8,000 of your annual allowance in different tax-free products. As an example, you could therefore save £12,000 in a cash ISA, £4,000 in a Lifetime ISA and £4,000 in a stocks and shares investing ISA.
Providing commentary on the announcement, money expert Martin Lewis said on social media platform X: “CASH ISA NEWS. Changes from 6 April 2027. Cash ISA annual allowance cut to £12,000 (from £20,000) per tax year.
“This will not apply to over 65s, who will keep £20,000 cash ISA limit The shares ISA will remain at £20,000 Remember this only impacts new money being put in, it won’t impact money already in ISAs.”
A Government report from last month estimated that households across the UK have a total of £360bn in cash ISAs, with many choosing the tax-free accounts instead of riskier investments in stocks and shares.
Between 2021/22 and 2023/24, money put into stocks and shares ISAs reduced by nine per cent, while injections into cash ISAs more than doubled.
How does a Cash ISA work?
You open and pay into the account – this is called making a deposit. You can now pay in up to £12,000 in a tax year.
Interest will be paid annually or monthly, depending on the cash ISA you pick. You won’t pay tax on the interest you earn
The interest you earn won’t count towards your personal savings allowance.
Types of Cash ISA
There are two main types of cash ISA to choose from.
Fixed Rate Cash ISAs – your interest rate stays the same for the term of your cash ISA. But there might be limits on how often you take money out of a Fixed Rate Cash ISA.
Easy Access Cash ISAs – the interest rate can change during the term of your cash ISA. You might be able to make more withdrawals from an easy access cash ISA.
