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Explained: The new Cash ISA rules and what they mean for your savings

Published: December 4, 2025 by Jennifer Armstrong

In the November 2025 Budget, the chancellor revealed new Cash ISA rules that will affect under-65s. The change could affect your savings and wider financial plan.

ISAs provide a tax-efficient way to save and invest, making them an essential part of many financial plans. In 2025/26, you can add up to £20,000 to ISAs and split the money across savings and investments however you wish. This will change from April 2027.

The Cash ISA limit will fall to £12,000 for most savers

The ISA annual allowance will remain at £20,000. However, for most savers, the amount you can place in a Cash ISA will fall to £12,000 in April 2027. So, if you want to use your full £20,000 allowance, you will need to place at least £8,000 in a Stocks and Shares ISA.

According to government figures (4 December 2024), there were around 12.4 million adult ISA subscriptions in 2022/23. Of these, 63.2% were Cash ISAs. As a result, some savers may wish to review their financial plan.

Over-65s will not be affected by the new Cash ISA rules, and will be able to add the full £20,000 allowance to a Cash ISA.

Despite speculation that the tax advantages of ISAs would be changed in the Budget, this didn’t materialise. The interest or other returns your money earns in an ISA will continue to be free from Income Tax or Capital Gains Tax.

Cash savings held outside of an ISA could be liable for Income Tax

Those who want to add more than £12,000 to their savings in a tax year might consider doing so outside of an ISA in light of the changes. This could lead to an unexpected tax bill.

The amount of interest on which tax might be due depends on the rate of Income Tax you pay. In 2025/26, the Personal Savings Allowance (PSA) is:

  • £1,000 if you’re a basic-rate taxpayer
  • £500 if you’re a higher-rate taxpayer
  • £0 if you’re an additional-rate taxpayer.

As a result, you may pay tax on the interest if your savings are not held in a tax-efficient wrapper, such as an ISA.

For example, if you’re a basic-rate taxpayer and receive £2,000 in interest on savings held outside a tax wrapper in 2025/26, you’d be liable to pay tax on the £1,000 that exceeds the PSA at 20%, resulting in a £200 bill.

During the Budget, it was also announced that the rate of tax you pay on savings income will rise by 2% from April 2027. So, if you exceed the PSA in 2027/28, the rate of tax you pay on the portion above the threshold will be 22%, 42% and 47% for basic-, higher-, and additional-rate taxpayers respectively.

Investing in a Stocks and Shares ISA could be right for some savers

There are times when holding money in cash makes sense – for instance, if the money will be used for a short-term goal or held in case of an emergency.

However, investing may be appropriate for long-term objectives, and the new ISA rules could be a useful reminder to check if a Stocks and Shares ISA is suitable for you.

You can invest in a range of assets through a Stocks and Shares ISA and choose a risk profile that suits you. Investment returns cannot be guaranteed, but they have the potential to outpace inflation to deliver growth in real terms.

Indeed, according to figures from Unbiased (4 February 2025), between 2015 and 2025, the average Cash ISA has delivered an average return of 1.21%. The average returns of a Stocks and Shares ISA were 9.64% over the same period.

If the new ISA rules mean you need to adjust your financial plan, you could benefit from moving some of your money into a Stocks and Shares ISA. You should be aware that investing carries risk, and it’s important to understand what level of risk is right for you.

Contact us

If you have any questions about the new ISA rules or would like to talk about other announcements made in the 2025 Budget, please get in touch. We’re here to help you understand what the changes mean for you and your long-term plan.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.


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