Previously, people could save up to £20,000 tax-free, either in a cash ISA or a stocks-and-shares ISA.
State pensioners ‘exempt’ from major cash ISA rule change
Rachel Reeves has slashed the cash ISA allowance to £12,000 in her Labour Party Budget. Previously, people could save up to £20,000 tax-free, either in a cash ISA or a stocks-and-shares ISA.
But the former will now be cut back. The chancellor announced on Wednesday: “The UK has some of the lowest levels of retail investment in the G7. And that is not only bad for businesses, who need that investment to grow, it’s bad for savers too.
“Someone who’s invested £1,000 in an average stocks and shares ISA every year since 1999 would be £50,000 better off today than if they’d put the same money into a cash ISA.”
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But the change is ONLY if you’re 65 or under. Announcing the changes, she says: “From April 2027, I will reform our ISA system keeping the full £20,000 allowance while designating £8,000 of it exclusively for investment, with over 65s retaining the full cash allowance.
“And thanks to our changes to financial advice and guidance, banks will be able to guide savers to better choices for their hard-earned money.
“Over 50% of the ISA market – including Hargreaves Lansdown, HSBC, Lloyds, Vanguard and Barclays – have signed up to launch new online hubs to help people invest in Britain.”
Ms Reeves the Commons: “Today I am asking everyone to make a contribution. The previous Conservative government froze personal tax thresholds from 2021 until 2028.
The honourable lady [Tory leader Kemi Badenoch] supported these freezes when her party made them. She might want to forget what she did, but the British people never will.
“And today I will maintain all Income Tax and equivalent National Insurance thresholds at their current level for three further years from 2028, while ensuring that people only in receipt of the basic or new State Pension do not have to pay small amounts of tax through Simple Assessment from April 2027.
“I will also keep the Plan 2 student loan repayments threshold at its 2026/27 level for three years. I know that maintaining these thresholds is a decision that will affect working people, I said that last year and I won’t pretend otherwise now.”
Previously, Reeves insisted that the freeze would end in 2028, and said last year said that to extend it would “hurt working people”.
She also insists that she will try to keep this contribution from everybody “as low as possible because I will make further reforms to our tax systems today to make it fairer”.
ommenting on the chancellor’s decision this afternoon to reduce the annual cash ISA allowance from £20,000 to £12,000 for under 65s, Scottish Friendly’s chief executive Stephen McGee says: “It’s encouraging to see the Chancellor take steps to reduce the annual cash ISA allowance, even if we believe she could have gone further.
“The direction of travel is right, but if the Government really wants to shift behaviour and support long-term wealth creation, the cap ideally needs to be set at around £8,000.
“At that level, households would still be able to build a meaningful emergency fund but would be encouraged to invest anything above that. This is vital, as there is currently around £360 billion sitting in cash ISAs earning interest that often fails to keep pace with inflation.
“To be clear, we welcome this move. But if the Government wants to truly build a US-style investing culture here in the UK, then it needs to go further.”