The Cash ISA Limit Stays at £20,000. The Tax on Savings Outside It Rises Again.

From April 2027, two Budget decisions land on the same saver at the same time. The cash ISA limit stays at £20,000 a year for adults of all ages, and the tax on savings interest held outside an ISA rises again, to 24% for basic-rate taxpayers, 44% for higher-rate taxpayers and 49% for additional-rate taxpayers.

The cut that was scrapped came from the previous Chancellor, Rachel Reeves, in last year’s Budget. It would have reduced the cash ISA allowance to £12,000 a year for savers under 65 from April 2027, leaving the overall £20,000 ISA allowance unchanged, as a way of pushing more money into stocks and shares. In his first Budget on Wednesday, John Healey reversed it, telling the Commons: “I will not go ahead with the cut to the tax-free amount that people can put into a cash ISA. The limit will stay at £20,000 per year, tax-free for people of all ages.”

The rate rise arrives in two steps. Budget 2025 had already pencilled in a two-percentage-point rise in savings-income tax from April 2027. This Budget adds a further two points on top, so against 2025 rates the rise is four points at every band: 20% to 24%, 40% to 44%, 45% to 49%. The personal savings allowance still shields the first £1,000 of savings interest a year for basic-rate taxpayers and the first £500 for higher-rate taxpayers, and low earners on less than £17,570 can earn up to £5,000 tax-free under the starting rate for savings. That shielding is why the government says 84% of taxpayers will see no increase in their tax bill. The rise applies to interest above those allowances.

At an illustrative 5%, the restored £8,000 slice of allowance earns £400 of interest in a year. Held inside a cash ISA, none of that is taxed. Held outside it, above the saver’s allowance, £400 of interest costs £176 in tax at the higher rate and £96 at the basic rate. Each £1,000 of taxable savings interest now costs £40 more than it would have under 2025 rates. The figures are illustrative — actual rates vary, and the allowance position decides whether any tax is due at all.

Jason Hollands, managing director at Bestinvest, put the flaw in the original cut in terms the new rates make sharper. “I suspect many of those who would have felt limited by the planned reduction to cash ISA allowances for under 65s would simply have put their cash in [a] taxable savings account instead, making them worse off.” Under the cut, the £8,000 a younger saver could not put in cash would have had to go somewhere, and the somewhere most savers reach for first is an ordinary savings account. From April 2027, that account is taxed at 24%, 44% or 49% on interest above the allowance. The policy meant to move money toward investment would have moved a large part of it into the most heavily taxed corner of the system instead.

HMRC‘s September figures show the habit the cut was aimed at was accelerating. Cash ISA subscriptions reached £95.6 billion in 2024-25, up 37.5%, or £26.1 billion, on the year before, and cash accounted for 64% of the adult ISA accounts subscribed to. Cash holdings ended the tax year at £429.9 billion, against a £952 billion adult ISA market. Holly Mackay, from Boring Money, put the same pile of money at £430 billion sitting in cash deposits, and argued: “Fear of loss is the main deterrent to investing and we will not fix this by restricting access to cash.”

At Nationwide, more than one in three under-65s saving into a cash ISA save over £12,000, according to Tom Riley, the building society’s group director of retail products, who added that cash ISAs provide “important funding for mortgage lending, including to first-time buyers”. The Treasury’s older national figure, from 2022-23, was that 78% of under-65 cash subscribers paid in less than £12,000. The two figures describe different books in different years, so they do not contradict each other, but the Nationwide number shows the cap would have bitten a third of one major lender’s younger savers, not a fringe.

April had already shown savers moving before the decision. The Bank of England recorded households putting an additional £12.0 billion into ISAs in April 2026, while withdrawing £13.1 billion from interest-bearing sight deposit accounts. April is the tax year’s opening month, and the rush to use the allowance is a regular feature, but the 2026 inflow came with the cut still scheduled for the following April.

The same Budget doubles the Bank Corporation Tax Surcharge from 3% to 6% for 15 months from January 2027, ending on 31 March 2028, to help pay for a £100 Household Energy Payment. Banks and building societies therefore keep the deposit flow that funds their lending, and pay a higher tax on their profits at the same time. The Treasury’s own Budget summary presents the two together as the price of household support. The deposit side is the part the industry had been lobbying for. Retail savings banks and building societies rely on ISA deposits to fund mortgages, and a £12,000 cash cap would have narrowed that funding at the same time as the surcharge rose.

The starter ISA has no design yet. The government says it will work with industry to explore a new incentive for people investing in a stocks and shares ISA for the first time, with the detailed design to be developed with the sector. Martin Lewis, who proposed the idea, posted on X after the announcement: “Delighted Chancellor has taken up my idea for this and gone with the carrot rather than the stick!” His own concept, set out before the Budget, was a £1,000 starter pot with an illustrative 5% state boost for money kept invested for a set time. The Budget also announces a First Time Buyer ISA for deposit saving and cuts the Lifetime ISA withdrawal charge to 20%.

The £20,000 limit has stood since April 2017, when it rose from £15,240. Since April 2024, savers have been able to spread that allowance across more than one adult ISA in a year, as long as the overall limit is not breached.