The UK Government’s Autumn Budget 2025 introduced major changes to Individual Savings Accounts (ISAs), with a particular focus on cash ISAs. These reforms aim to reshape how people save and invest, and they will come into effect from April 2027.
What’s Changing?
- Cash ISA allowance reduced: From April 2027, the annual limit for cash ISAs will fall from £20,000 to £12,000 for savers under 65. Those aged 65 and over will retain the full £20,000 allowance.
- Overall ISA allowance unchanged: The total annual ISA limit remains at £20,000, meaning savers can still shelter the same amount from tax, but they’ll need to use other ISA types to reach the maximum.
- Stocks & Shares ISA and Innovative Finance ISA: These products keep their £20,000 limit, encouraging more investment in equities and alternative finance.
- Lifetime ISA review: The Government announced plans to consult on simplifying Lifetime ISAs in 2026, but no immediate changes were confirmed.
- Transfer restrictions: Under-65s will no longer be able to transfer funds from Stocks & Shares ISAs or Innovative Finance ISAs into cash ISAs.
- Tax changes: Savings income tax rates will rise by two percentage points from April 2027, making tax-free wrappers more valuable.
Impact on Savers
The changes will affect savers differently depending on their financial goals:
- Cash-focused savers: Those who prefer the security of cash ISAs will face a reduced allowance. While most savers deposit less than £12,000 annually, individuals with large lump sums, such as from inheritance or property sales will need to rethink their strategy.
- Encouraging investment: The Government’s aim is to channel more money into investments. To use the full £20,000 allowance, savers under 65 will need to allocate at least £8,000 to stocks, shares, or other investment products. This introduces greater risk and requires careful consideration of risk tolerance.
- Existing balances unaffected: Current cash ISA holdings remain unchanged. The new limit applies only to contributions from April 2027 onwards.
- Flexibility reduced: Restrictions on transfers between ISA types will limit options for those who like to move funds between cash and investment products.
- Tax implications: With savings income tax rates increasing, holding cash outside an ISA becomes less attractive, reinforcing the importance of using the full allowance wisely.
Areas Where Details Are Unclear
Several aspects of the reforms still need clarification:
- Age rules: How will the allowance apply if someone turns 65 mid-tax year? Guidance is expected after industry consultation in 2026.
- Lifetime ISA changes: The Government has signalled reform, but details on withdrawal penalties and flexibility remain unknown.
- Treatment of certain investments: It’s unclear how “cash-like” investments, such as bonds or gilts, will be classified under the new rules.
- Flexible ISA adjustments: The Budget hinted at tighter rules for flexible ISAs, reducing the ability to withdraw and replace funds within the same tax year, but specifics are yet to be confirmed.
Summary
- Cash ISA limit for under-65s drops to £12,000 from April 2027.
- Overall ISA allowance stays at £20,000.
- Greater emphasis on investment products.
- Details on age rules, Lifetime ISAs, and flexible ISAs still pending.
The Government’s intention is to drive more ISA Savings into Stocks & Shares rather than cash; whilst these rule changes will help facilitate that, the biggest question is likely to be whether savers are willing to adjust their attitudes towards risk-based rewards through stocks and shares, rather than guaranteed cash-based returns.
