Rachel Reeves has officially announced significant changes to cash ISAs after much anticipation, but other Budget updates may also affect savers. Starting from April 2027, the tax rate on savings interest is set to rise. Basic-rate taxpayers will have a £1,000 personal savings allowance before being taxed. Any savings interest exceeding this will be subject to a 22% tax rate, up from the current 20%.
For those with savings in a top-rate easy-access savings account at 4.5%, holding over £22,000 for a year could breach the savings allowance. Higher-rate taxpayers face a lower threshold, with a 42% tax rate on savings interest exceeding £500 a year, increasing from the current 40%. Additional rate taxpayers, paying 45% tax on all savings interest, will see this rate climb to 47%.
ISA savings remain tax-free, with a current yearly limit of £20,000 across all accounts. However, from April 2027, individuals under 65 can only contribute up to £12,000 annually to a cash ISA. The overall ISA limit remains at £20,000, allowing a mix of cash and stocks and shares ISAs.
Over-65s are unaffected by the new cap and can continue saving up to £20,000 yearly in a cash ISA. Various ISA types include cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs, while children have Junior ISAs.
Sarah Coles, Hargreaves Lansdown’s head of personal finance, expressed concerns about more people saving outside tax-efficient environments. She highlighted the importance of utilizing cash ISAs for tax protection. Though the cash ISA allowance change is not immediate, taking advantage of the current allowance is advisable.
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