Autumn Budget: Cash ISA tax free allowance slashed to £12,000
In a major policy shakeup, Chancellor Rachel Reeves has confirmed a slash to the cash ISA ceiling but over 65s will retain the full allowance.
After weeks of speculation, Reeves confirmed the ceiling will be cut from £20,000 to £12,000 as of April 2027, as part of her bid to stop people from hoarding cash and boost domestic investment.
The cut is slightly higher than the £10,000 cap that was initially floated a few months ago,most likely to appease bodies who are in support of cash ISAs.
The Treasury’s decision marks the first change to the regime since the limit was lifted to £20,000 from £15,000 in 2017 by then-Chancellor Philip Hammond.
However, pensioners will dodge the slash, with industry figures hailing the move as “smart” allowing them to accumulate lower-risk savings upon entering retirement, through moving cash from stocks and shares ISA to cash ISAs
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Bringing in separate rules for people over the age of 65 is aimed at helping retirees, who often need bigger cash balances.
“However, introducing separate age-based rules risks bringing more complexity to ISAs.
“One of the key attractions of ISAs is that they make life easier for savers and investors, because they don’t have to worry about tax.
“The way this change is implemented needs a focus on simplicity, making it easy to save and invest.”
Ending broker and building society feud
The confirmation of the lowered ceiling also brings to an end the feud that has been raging between building societies and brokers since rumours of a cut first surfaced.
Building societies, who first opposed a slash in the summer when it was first brought into consideration, argue that they use cash ISAs to fund mortgages and reducing these inflows would potentially make home loans more expensive.
Despite the reduced cut, building societies described the decision as a “sucker punch for savers” and “deeply disappointing to lenders”.
Harriet Guevara, chief saving officer at Nottingham Building Society, said: “At a time when financial confidence is already fragile, cutting the allowance sends a difficult message to households who are trying to do the right thing.
“Limiting Cash ISA deposits is also at odds with this Government’s own pledge to double the size of the mutuals sector… limit access to homeownership, and stall the long-term growth of building societies.”
The cash ISA is the UK’s most popular saving product with roughly £360bn deposited.
Meanwhile, brokers and other investment platforms were in favour of a cut, with some urging Reeves to go even further and abolish the limit altogether to push people towards opening a stocks and shares ISA.
Richard Stone, chief executive of the Association of Investment Companies said: “Cutting the cash ISA limit is a milestone toward creating a nation of investors.
“We need a strong investment culture in the UK and it is encouraging to see the government starting to build the foundations for this.”
Other plans to bump investment
Plans to introduce a Brit ISA, which would have had a minimum allocation of 20 per cent to UK equities, were ultimately scrapped following limited support from ISA providers and the UK’s Investment Association trade body.
The Brit ISA was first proposed by then Chancellor Jeremy Hunt in the 2024 Spring Budget, but were initially shelved by Labour until being revived by the Treasury earlier this year.
But, the Treasury has put forward other plans besides the cash ISA cut to curb domestic looking going overseas and stop cash accumulation.
This includes an industry-led campaign aiming to explain the benefits of investing, set to be rolled out before the 2026 ISA season.
However, the campaign was hit with another significant blow last week, after Interactive Investor bowed out, which is said to have been driven by the cost implications of participating.
AJ Bell, Freetrade and Trading 212, who all have a significant presence in the UK retail investment space, have also walked away from the plans.