Prior to the Budget, chancellor Rachel Reeves expressed a desire to encourage more investment in UK markets. She stated that this would boost the economy, while also helping savers generate more growth than they would if they held large amounts of cash.
To achieve her vision of boosting investment in UK stocks, Reeves announced an important change to how Cash ISAs work in her recent Budget. The new rules don’t come into effect until April 2027, but it’s important that you are prepared and understand how the changes might influence your financial plan.
Read on to learn everything you need to know about upcoming changes to the Cash ISA.
Current rules allow you to spread your annual £20,000 ISA allowance however you like
ISAs are tax-efficient savings vehicles that allow you to grow your wealth without paying Income Tax, Capital Gains Tax (CGT), or Dividend Tax.
There are several types of ISA you might use, including a Cash ISA and a Stocks and Shares ISA.
A Cash ISA functions much like a standard savings account – you deposit funds and earn regular interest. Alternatively, you might invest through a Stocks and Shares ISA, which allows you to purchase various investments and benefit from tax-free growth.
Under the current rules, you have a £20,000 ISA allowance to use each year, and you can spread this across different accounts however you choose. You might keep the full amount in a Cash ISA, invest it all in a Stocks and Shares ISA, or split it between the two. You can also use other types of ISA, including a Lifetime ISA.
This means you have flexibility over how you save and invest your wealth. However, data shows that UK adults are more likely to favour cash over investments.
According to the 2024 Financial Lives Survey published by the Financial Conduct Authority (FCA), 32% of UK adults held a Cash ISA in 2024, while only 17% had a Stocks and Shares ISA.
The upcoming changes are designed to limit the amount you can put in your Cash ISA each year and encourage more investment.
The Cash ISA allowance will fall to £12,000 for under-65s from April 2027
From April 2027, your overall ISA allowance will remain £20,000 a year. However, you will only be able to save up to £12,000 of this in a Cash ISA each year. The remaining £8,000 of your allowance will be reserved exclusively for investing.
This rule change only applies to anyone under the age of 65. If you’re 65 or above, you can continue using your ISA allowance as normal.
The differing rules for over-65s exist because if you’re approaching or in retirement, you may want to hold your wealth in less volatile assets such as cash or bonds, rather than stocks and shares. This could give you some protection from market fluctuations that reduce the value of your wealth and make it harder to draw the income you need to fund your retirement.
If you are under 65, the new ISA rules could affect how you hold your wealth, especially if you favour cash.
Changes to the Cash ISA could be an opportunity to review how you build wealth
The reduction of the Cash ISA limit could mean that you have fewer opportunities to build tax-efficient cash savings in the future. However, you might see it as an opportunity to review how you manage your wealth and consider whether you are holding more cash than you need to.
Cash can be useful as an emergency fund or to save for short- to medium-term goals, such as holidays or home renovations. But cash may not provide the same returns as investments over a longer period.
Figures reported by MoneyWeek show that if you saved £1,000 into a Cash ISA in 1999 when the tax wrapper was launched, you would have £2,079 in December 2025.
Meanwhile, if you invested the same £1,000 in a Stocks and Shares ISA and put it in a typical UK All Companies fund, you would have £3,787.
This is a significant difference, and if you’re investing regularly, the disparity between a Cash ISA and a Stocks and Shares ISA may be much greater.
Naturally, past performance doesn’t guarantee future returns, but this data suggests that investing a larger portion of your wealth could help you generate more growth over time.
Before the change comes into effect in April 2027, we can review your ISAs and discuss whether you may benefit from investing more, especially after the Cash ISA limit falls. Ultimately, this could mean you’re still able to reach your financial goals despite any legislative changes.
Get in touch
If you’re concerned about how upcoming changes to the Cash ISA allowance could affect you, we can help.
Please give us a call on 01276 855717 or email info@braywealth.com today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals 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.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount 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.
Approved by the Openwork Partnership on 22/12/2025
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