The UK government can cut the cash ISA allowance from £20,000, so the account holders, if you wish to take advantage of the limit, you should act now. People who are wondering about the ISA allowance speculation can find everything about it here.
The Cash ISA allows UK residents to save tax-free up to a certain limit every year. The Individual Saving Account has several types, and you can split the allowance across these multiple accounts in a tax year.
The ISA offers a secure and tax-free way for people without any risks, as you do not pay for interest and income, or capital gains from investment. However, reports say the government is now thinking of cutting the tax-free allowance to £10,000 to promote investment.
What is the current ISA threshold for a year?
There are four types of ISAs for UK residents: Cash ISA, Lifetime ISA, Stocks and Shares ISA, and Innovative Finance ISA. Based on the government guidelines, individuals aged 18 or over must follow the threshold below to save into the ISAs for the 2025-26 tax year:
- Cash ISA/ Stocks and Shares ISA: £20,000
- Lifetime ISA: £4,000 until age 50 (you must be under 40 to open a Lifetime ISA)
- Junior Stocks and Shares ISA: £9,000 (account opened by parents or guardians for the child)
Remember, you split up the savings in multiple accounts (if eligible) up to £20,000 a year for the tax-free withdrawal. The unused allowance in the account will not roll out for the next tax year, meaning if you contribute £5000 in the tax year, the remaining £15,000 will not roll out for the next year.
Hence, if you wish to take advantage, you must use the £20,000 allowance in the respective tax year, that is, before 5 April.
What are the speculations about the Cash ISA cut?
There is speculation going on that the UK government will cut the amount that account holders can save tax-free into the ISAs. The rumors say that the policymakers plan to cut the Cash ISA allowance to £10,000 or £12,000 from £20,000.
Chancellor Rachel Reeves is expected to announce the tax rise and spending cuts in the next Budget session that will be held this month. The Chancellor says the returns on savings and returns on pensions in the UK are lower than in other countries, hence they wish to make sure people get good returns on their savings.
The Chancellor says they wish to promote people to invest more in British company stocks, and others to boost the nation’s economy and grow their money rather than save it. The cut to the ISA allowance would encourage people to invest as they are facing the budget shortfall of £22 billion.
How the Cash ISA cut would affect the account holders?
If the government cut the Cash ISA allowance to £10,000, it would affect the savers in the following way:
- The cut in the allowance would reduce the amount of interest you save without paying the tax.
- Though the cut would affect the future contributions, it may also affect the existing funds protected under the Cash ISA allowance.
- The government wishes to push the savers towards the Stocks & Shares ISAs for higher returns.
- The older savers can be affected, as they are mostly reluctant to invest their money and take risks.
- The report says the cutting of the ISA allowance would negatively affect the consumers, as building societies would depend on cash ISAS for mortgage lending.
- The Treasury Select Committee says the reduction in the allowance means the financial product competition can be less, which would leave the prices higher for the customers.
What should you do now?
If you are a saver and concerned about the Cash ISA allowance cut, you should take the following action:
- You should deposit the tax-free allowance up to £20,000 for the 2025-26 tax year because if the cut really happens, you can use this tax year advantage.
- You can invest your savings into stocks & shares for higher long-term returns and review your strategy.
- You can take some financial advisor advice to keep the balance of your investment and savings in the ISAs.
The Cash ISA allowance reduction is not finalized yet; we will know the real deal when the Chancellor presents the next budget in November 2025.
Disclaimer: Cash ISA allowance update details are for informational purposes only. Official limits and rules are determined by the UK government and HMRC.
