Treasury minister issues update for people impacted by reduced ISA allowance

The Government has issued an update about people who will be impacted by reductions in the ISA allowance. Chancellor Rachel Reeves announced in the Autumn Statement the ISA allowance would be cut for some savers.

Under the current rules, you can deposit up to £20,000 a year into ISAs, and this can be split between cash ISAs and stocks and shares ISAs.

But from April 2027, the amount you will be able to put into cash ISAs will be limited to £12,000 a year.

You will still get the other £8,000 allowance, but this will have to go into stocks and shares accounts. The new rules will not apply to those aged 65 and over, who will retain the current allowance.

Conservative MP Wendy Morton asked the Chancellor in a written question if she had made any estimate of how many people would be affected by the changes, and the "demographic profile" of these savers.

The MP also asked if the Government has any plans to bring in "alternative saving and investment incentives".

Treasury minister Lucy Rigby provided a response from the Government. She said: "ISAs incentivise saving and investment by providing generous tax advantages to individual taxpayers. Individuals can save up to £20,000 into an ISA each year, and any savings income received within an ISA is tax free.

"In addition, due to the Personal Savings Allowance and the Starting Rate for Savings, in 2025-26 around 85 per cent of people with savings income will pay no tax on that income."

She went on to explain how the new ISA rules would affect savers. The minister said: "This policy will affect those aged under 65 from April 2027, but the overall Individual Savings Accounts (ISAs) limit will remain at £20,000 for all savers when the annual Cash ISA limit is set at £12,000. Savers can still use stocks and shares ISAs beyond the £12,000 up to £20,000. It will not affect existing cash ISA savings."

Ms Rigby also spoke about what future updates there will be about changes to ISAs.

She said: "A policy costing note for the package of measures was published alongside the Budget, including the changes to the ISA regime.

"Following a technical consultation, new ISA regulations will be laid, and a Tax Impact and Information Note will be published in the spring."

Tax-free savings

A key benefit of ISAs is all your interest earnings and investment growth remain tax-free, as long as you stay within your annual allowance. You can also earn tax-free interest on your other savings, within certain allowances.

There is a starter rate for savings once your start earning income tax, which is when your income move above the personal allowance of £12,570. The starter rate allows you to earn £5,000 interest tax-free, but this reduces for each £1 you earn above the personal allowance, meaning it disappears entirely once you income reaches £17,570 or more.

However, basic rate taxpayers can also earn up to £1,000 a year interest tax-free, which reduces to £500 if you are on the higher rate of income tax.

Those on the additional rate get zero savings allowance, and have to pay tax on all their interest earnings.