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It was announced in the Budget, on 26 November 2025, that from 6 April 2027, the annual cash ISA subscription limit will be reduced to £12,000 from £20,000.

The overall ISA subscription limit will remain unchanged, however £8,000 of the total £20,000 an individual can invest into an ISA will have to be designated to a stocks and shares ISA.

The new rule will only apply to investors under the age of 65, individuals who are 65 or over, at the time of the change and those who reach 65 in later years, will be able to continue investing £20,000 into ISAs with the option of placing the whole amount into cash or splitting their funds across cash and stocks and shares.

The Government believes that the new rules will encourage more investment into markets and specifically the UK and its companies whilst still providing individuals with the ability to choose how much risk they take with their funds.

The age distinction highlights the need for individuals to consider the investment term and risk profile when selecting the correct investment product.  Younger investors generally have a longer term to invest over and can be more flexible regarding when to withdraw their funds.  The interest rate paid on cash ISAs is not always high and the effects of long term inflation on cash ISAs can see the buying power of an investment actually shrink.  Placing a portion of funds into higher risk stocks and shares, over a longer term, commonly leads to higher returns, which helps keep pace with inflation.

Older individuals may rely on their ISAs to supplement retirement income, therefore maximising the interest available is important to them, whilst the more volatile returns from stocks and shares are not always reliable over a shorter timescale or regular enough to be relied upon for topping up retirement income.

Following these changes, a cash only investor who chooses to place £12,000 into a cash ISA and £8,000 into a non-ISA cash savings account would earn untaxed interest on the £12,000 for as long as it remains within the ISA wrapper, the interest earned on the £8,000 outside the ISA wrapper would be subject to Income Tax.

How much tax is paid on savings interest will vary depending on an individual’s other earnings in the year the interest is paid:

• Those with no other income, or on a very low income, could earn £5,000 of savings interest without paying any tax,
• Basic rate taxpayers are allowed to earn £1,000 in interest before tax starts to be charged,
• Higher rate taxpayers have a £500 savings allowance, and
• Those with income in the additional rate tax bracket do not receive a savings allowance at all.

Tax is charged at the prevailing marginal rate on any interest earned over the individual’s savings allowance, for details of how the 2% increase in the tax rate could affect your savings interest, which was also announced in the Budget.

Read about how the increase in the tax rates announced can affect your savings interest

If you have any queries about how the annual cash ISA subscription limit being reduced to £12,000 from £20,000 will affect you or if you would like to review your financial, then please do not hesitate to give us a call on 01228 711888 or 01387 270340
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