Chancellor Rachel Reeves delivered the 2025 Autumn Budget on Wednesday 26 November.
Following months of waiting, media speculation, and leaks, the classic “tax and spend” Budget included a series of tax-raising measures, most notably a change to rules around Cash ISAs.
Read on to learn how and why the Cash ISA rules are changing and what it may mean for you and your savings.
The amount you can save into a Cash ISA is reducing to £12,000 – for some of us
From April 2027, the Individual Savings Account (ISA) allowance will change for under-65s.
Currently, UK adults have an annual ISA allowance of £20,000, which you can split between Cash ISAs and Stocks and Shares ISAs as you choose.
From 6 April 2027, if you’re under 65, the overall £20,000 annual allowance will remain unchanged, but the amount you’ll be able to pay into a Cash ISA will be limited to £12,000. This means you could save up to £12,000 in a Cash ISA and invest the remaining £8,000 into a Stocks and Shares ISA.
If you’re over 65, you’ll be able to continue saving the full £20,000 into a Cash ISA each year.
No matter what type of ISA wrapper you use, interest and gains will remain tax-free.
Championing long-term investing
According to Boring Money data, there are around 3.8 million UK adults under 65 who don’t have a Stocks and Shares ISA. However, these people do have savings in a Cash ISA and a “decent cash buffer” of £10,000 or more – meaning many of them could benefit from investing in the stock market for potentially improved long-term returns.
And Reeves clearly hopes the move will encourage savers to invest more of their cash. In her hour-long speech, she said: “The UK has some of the lowest levels of retail investment in the G7, and that is not only bad for business […] it is bad for savers, too.
“Someone who had invested £1,000 a year in an average Stocks and Shares Individual Savings Account (ISA) every year since 1999 would be £50,000 better off today than if they had put the same money into a Cash ISA.”
While it’s important to have adequate cash savings to cover the costs of an emergency, holding too much cash could be detrimental to your long-term financial security. This is because, over the long term, inflation could reduce the real-terms spending power of your cash.
Ideally, your emergency fund should have enough money to cover three to six months of normal spending. Depending on your circumstances, you may wish to hold more.
With a healthy emergency fund safely tucked away in an easy access savings account, investing excess cash could provide greater potential for growth.
If you’d like to find out more about how we could help you to invest and potentially grow your wealth, please get in touch. Whatever your goals, we can build a tailored financial plan and investment strategy to suit your needs.
What it all means for your cash savings
If you have a lot of cash savings outside a tax-efficient ISA wrapper, you may have to pay tax on the interest you earn.
The amount of tax you may be charged will depend on your marginal tax rate and the Personal Savings Allowance (PSA). In the 2025/26 tax year, your PSA is:
- £1,000 if you are a basic-rate taxpayer
- £500 if you are a higher-rate taxpayer
- £0 if you are an additional-rate taxpayer.
So, if you’re a basic-rate taxpayer, you can earn £1,000 in interest from non-ISA savings before paying any tax. Anything that exceeds that limit will be taxed at 20%.
From April 2027, this will increase to 22%.
Meanwhile, also from 2027, if you’re a higher-rate taxpayer you’ll pay 42% on interest over £500, and if you pay additional-rate tax you’ll be charged 47% tax on all interest you earn.
Alternative options for saving your cash
Under 65 and seeking alternative ways to save extra cash? Premium Bonds might be a useful and potentially fun option.
Run by NS&I (National Savings and Investments), the UK government savings bank, Premium Bonds combine secure savings with the opportunity to win monthly prizes.
Prizes start at £25, but if you hit the jackpot, you could win up to £1 million.
The average annual prize fund rate fluctuates, but in November 2025, it was 3.6%, and each £1 bond had a 1 in 22,000 chance of winning.
Like Cash ISAs, Premium Bonds are tax-efficient, and prizes are free from UK Income Tax and Capital Gains Tax.
You can receive payment straight into your bank account or by cheque in the post. Alternatively, you can reinvest winnings to boost your chances of hitting the jackpot in the future.
Get in touch
If you’d like to explore how you might save and invest for your future, or you’re concerned about how the Budget changes may affect you and your financial plan, please get in touch.
Email contactme@kbafinancial.com or call us on 01942 889 883.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both. The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.
Past performance is not a guide to future performance and should not be relied upon.
HM Revenue and Customs’ practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The Financial Conduct Authority does not regulate NS&I products.
Approved by The Openwork Partnership on 02/02/2025.