Rachel Reeves has officially announced a reduction in the cash ISA limit, specifically affecting younger savers.
During her Autumn Budget presentation, the Chancellor disclosed that the yearly cash ISA limit will be decreased from £20,000 to £12,000 starting April 2027.
Despite the cut, the total ISA limit remains at £20,000, enabling individuals to allocate £12,000 to a cash ISA and £8,000 to a stocks and shares ISA. Alternatively, the full £20,000 allowance can be invested in stocks and shares.
However, individuals over 65 are exempt from the reduced cap and can continue to save up to £20,000 annually in a cash ISA. The current allowance across all ISA accounts stands at £20,000 per tax year.
An ISA is a tax-free savings account where interest earnings are not taxed. Alongside the reduction in the cash ISA rate, it has been confirmed that the tax rate on savings interest for other accounts will increase from April 2027.
For basic-rate taxpayers, the tax rate on savings interest exceeding £1,000 a year will rise from 20% to 22%. Higher-rate taxpayers will see their tax rate on savings interest above £500 increase from 40% to 42%. Additionally, additional rate taxpayers will face a hike from 45% to 47% on all savings interest starting April 2027.
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