The Autumn Budget 2025 has brought the most significant shake-up to ISA rules in nearly a decade. On November 26, Chancellor Rachel Reeves confirmed what many had feared: the cash ISA allowance is being cut. But with important exemptions and a delayed implementation, there’s still time to plan. Here’s everything you need to know about how these changes will affect your savings.
The Cash ISA Cut Confirmed
During the Budget, Rachel Reeves confirmed she would lower the current Cash ISA tax-free allowance to £12,000, stating she would “reform our ISA system, keeping the full £20,000 allowance while designating £8,000 of it exclusively for investment” This means that from April 2027, savers under 65 will face a new constraint on where they can shelter their money from tax.
The overall ISA allowance of £20,000 remains unchanged, but the change means those under 65 can only contribute up to £12,000 to cash ISAs, with at least £8,000 required to go into stocks and shares ISAs if they want to use their full allowance (MoneySavingExpert.com)
The Over-65s Exemption
In a significant concession that consumer champion Martin Lewis had publicly called for, over-65s will retain a £20,000 cash allowance, with the rule coming into effect from April 6, 2027. This exemption recognises that older savers often need larger cash balances for security and may be less willing or able to take investment risk.
The rules on maximum contributions for those who turn 65 partway through a tax year will be determined in 2026 following an industry consultation (MoneySavingExpert.com) suggesting the Treasury is still working through the practical implementation details.
Why the Government Made This Change
The Chancellor’s rationale centres on encouraging investment in UK equities and the broader economy. The Chancellor aims to encourage more investment in the stock market by her own calculations, suggesting that investing since 1999 instead of saving in a Cash ISA could have left savers £50,000 better off.
The government hopes this will direct more money toward UK businesses and productive investment rather than sitting in cash accounts. However, the effectiveness of this approach remains hotly debated.
What Happens to Existing Cash ISA Savings?
Any money that is already in a cash ISA should be unaffected and will continue to earn tax-free interest, with the changes only applying to new contributions from April 2027 onwards (NatWest) This means your existing cash ISA pots will continue to grow tax-free regardless of size.
Additionally, no changes have been made to Junior ISAs, with their allowance remaining at £9,000 each tax year per child.
Other ISA-Related Changes
The Budget also addressed the Lifetime ISA. The government announced the Lifetime ISA will be scrapped for new savers, though existing holders can continue using theirs. The government is consulting on a replacement product designed to be simpler for first-time home buyers.
Tax Changes Affecting Savers
Beyond the ISA changes, the Budget introduced other measures affecting savers’ returns:
Dividend tax rates are increasing, with both the basic and higher-rate bands seeing a 2% increase from April 2026, making the new rates 10.75% for basic-rate taxpayers and 35.75% for higher-rate taxpayers. This makes holding dividend-paying investments outside tax-efficient wrappers even more costly.
Additionally, the freeze on income tax and national insurance allowances has been extended until April 2031, meaning fiscal drag will push more savers into higher tax brackets, reducing their personal savings allowances.
What You Should Do Now
With the changes not taking effect until April 2027, you have time to plan:
Maximise your current allowance: The change will only apply to new contributions made from April 2027 and won’t have any impact on savings already contributed to a cash ISA up until this point. Consider using your full £20,000 cash ISA allowance for the 2025/26 and 2026/27 tax years.
Review your risk tolerance: If you’re saving for goals more than five years away, stocks and shares ISAs historically offer better growth potential. However, investment risk isn’t suitable for everyone, especially for short-term savings or emergency funds.
Consider your age: If you’re approaching 65, the exemption may work in your favour. If you’re significantly younger, you’ll need to adapt your savings strategy.
Getting Professional Guidance
The Budget changes add complexity to financial planning that already requires balancing multiple considerations including risk tolerance, time horizons, and tax efficiency. At Bateman Group, we help clients navigate these changes and structure their savings and investments appropriately for their circumstances.
Whether you’re approaching the new £12,000 cash ISA limit, wondering if stocks and shares ISAs are right for you, or need to review your overall financial strategy in light of the Budget changes, professional guidance can help you make informed decisions. For expert advice on structuring your savings tax-efficiently, contact Bateman Group today.
