Cash ISA Limit Slashed to £12,000 for Under‑65s in 2025 Budget

From April 2027, working‑age savers will only be able to shelter £12,000 a year in cash ISAs, while pensioners keep the full £20,000 cash allowance. Here’s the full picture, the politics – and what you can do now.

London, 27 November 2025 – Yesterday’s Autumn Budget from Chancellor Rachel Reeves confirmed one of the most closely watched changes in UK personal finance: a cut to the tax‑free cash ISA limit for under‑65s from £20,000 to £12,000 a year from April 2027. Those aged 65 and over will still be allowed to put the full £20,000 into cash. ^[1]

The overall £20,000 ISA allowance is staying, but under‑65s will have to put at least £8,000 a year into investment ISAs, such as stocks and shares, if they want to use the full allowance. ^[2]

At the same time, the government is raising tax rates on savings interest, dividends and property income by 2 percentage points, and confirming that Lifetime ISAs will be scrapped after a consultation in 2026. ^[3]

Here’s what changed, who’s affected, and the steps savers may want to consider now.

1. The new cash ISA rules at a glance

From 6 April 2027, the ISA landscape will work very differently for anyone under 65:

Overall ISA allowance: stays at £20,000 a year.
Under 65:
- Maximum £12,000 per tax year can go into cash ISAs.
- The remaining £8,000 must go into other ISA types – most obviously stocks & shares ISAs, but also potentially innovative finance ISAs or other qualifying investment ISAs. ^[4]
Age 65 and over:
- Can still put the full £20,000 into cash ISAs if they wish. ^[5]
Existing ISA balances:
- Money you’ve already put into ISAs before April 2027 is unaffected – the new rules apply to new contributions only. ^[6]

Several other ISA‑related points from the Budget:

The £20,000 overall ISA limit, £9,000 Junior ISA and £4,000 Lifetime ISA limits will be frozen until at least April 2031, meaning no inflation uplift for the rest of the decade. ^[7]
Government plans to digitalise ISA administration – including a single online “ISA account” front end – have been pushed back to around 2028. ^[8]

In practical terms, this is the first cut to the cash ISA allowance since 2017, and it turns the current “cash‑first” culture on its head for working‑age savers. ^[9]

2. Why is the government cutting the cash ISA limit?

The Treasury’s logic is clear: ministers want less money parked in low‑yielding cash and more invested in the markets, especially in UK companies.

Around £300 billion is currently sitting in cash ISAs, which officials argue often deliver relatively poor long‑term returns, especially after inflation. ^[10]
By forcing under‑65s to put at least £8,000 a year into investment ISAs if they use the full allowance, the government hopes to:
- Boost long‑term retirement wealth for savers.
- Channel more domestic money into UK equities and funds.
- Help revive the London stock market after years of outflows. ^[11]

In its Budget documentation, the government links this reform to a broader strategy of taxing income from assets more like income from work, by raising tax on savings, dividends and property income while leaving the main income tax and National Insurance rates unchanged. ^[12]

Critics, however, argue that:

The UK has a deep cultural aversion to investment risk, and many savers may simply reduce the amount they shelter in ISAs rather than move into shares. ^[13]
Without stronger financial education, millions risk being nudged into investments they don’t fully understand. ^[14]

3. Workers vs pensioners: who gains and who loses?

One of the most politically sensitive aspects is the age split in the new rules.

Under‑65s: an £8,000 “cash crackdown”

For working‑age savers, the change is effectively a £8,000 per‑year cut in the maximum tax‑free cash shelter they can use.

As one newspaper headline put it, workers face an £8,000 cash ISA crackdown while pensioners are spared – a reference to the fact that the cut only applies to those under 65. ^[15]

The worst‑affected groups are likely to be:

Higher earners who regularly max out the full £20,000 cash ISA allowance.
Cautious mid‑career savers who prefer cash to stock market risk but still try to shelter large amounts tax‑free each year.
People approaching retirement but still under 65, who may be building up cash reserves for imminent spending or de‑risking from investments.

However, government data cited by wealth manager Evelyn Partners suggests the number of people at the very sharp end is relatively small: fewer than one in three cash ISA customers currently put in more than £12,500 a year, and the average subscription is around £7,000. ^[16]

Over‑65s: full cash shelter preserved

For pensioners, the news is much more comfortable:

Over‑65s keep the ability to put up to £20,000 a year into cash within ISAs. ^[17]
This exemption acknowledges that older savers are typically more risk‑averse, more reliant on interest income, and often have sizable cash buffers for care, health costs or irregular spending. ^[18]

Consumer champion Martin Lewis and his team at MoneySavingExpert had publicly argued that if the government insisted on cutting cash ISA limits, any change should spare older savers – a carve‑out which has now been adopted. ^[19]

4. Other big changes to savings tax you need to know about

The cash ISA cut doesn’t happen in isolation. Budget 2025 layers on a wider squeeze on unearned income:

Dividend tax:
- Basic and higher‑rate dividend tax will rise by 2 percentage points from April 2026, to 10.75% and 35.75% respectively. ^[20]
Tax on savings interest:
- From April 2027, the basic, higher and additional rates on savings income all rise by 2 percentage points, to 22%, 42% and 47%. ^[21]
Property income:
- Separate new property tax bands from April 2027 will see basic‑rate landlords pay 22%, higher‑rate 42% and additional‑rate 47% on rental profits. ^[22]

The Chancellor insists that around 90% of savers will still pay no tax on their savings interest, thanks to the Personal Savings Allowance and ISA tax shelters. ^[23]

But taken together, the measures mean that:

Keeping money outside ISAs will become more painful over time.
The value of ISA shelter space rises, even as the cash slice shrinks for under‑65s.

5. Lifetime ISAs scrapped and wider ISA reform

ISA reform is going beyond cash allowances.

Lifetime ISAs on the way out

The government will consult in early 2026 on replacing the Lifetime ISA (LISA), with the clear intention that the current product will ultimately be scrapped. ^[24]

Details are still to come, including:

How existing LISA holders will be treated.
What kind of replacement vehicle might be offered for first‑time buyers and younger savers.

For now, the £4,000 LISA limit remains, but it is frozen until 2031 and sits alongside the new cash ISA restrictions. ^[25]

ISA allowances frozen for the rest of the decade

The Budget also confirms that:

£20,000 adult ISA, £9,000 Junior ISA and £4,000 LISA allowances will be frozen until at least April 2031. ^[26]

Because wages and prices are expected to rise over that period, the real value of those allowances will shrink – a phenomenon often called “fiscal drag”.

6. How experts are reacting

Consumer voices

MoneySavingExpert and other consumer‑focused outlets have broadly welcomed the protection for pensioners, while warning that:

The new rules will add complexity to an ISA system that was previously simple (“put up to £20k a year in whatever mix you like”). ^[27]
Savers may feel nudged into investments without adequate support to understand the risks.

Investment industry: cautiously pleased

On the other side, the investment industry has largely applauded the move:

The Association of Investment Companies (AIC) called the changes a “milestone” in building a stronger investment culture, arguing that millions could be encouraged to move long‑term savings out of cash and into the markets. ^[28]
Ethical bank Triodos, among others, pointed out that for savers with a time horizon of five years or more, investing a portion of their ISA allowance could offer better long‑term growth – while stressing that capital is at risk and values can fall as well as rise. ^[29]

Shares in major investment platforms rose on the announcement, with firms such as AJ Bell and IG Group seeing gains as markets priced in a long‑term boost in flows into investment products. ^[30]

Building societies and cash‑focused providers: worried

Building societies and cash‑heavy banks are more nervous:

The Building Societies Association has warned that lowering the cash ISA cap could damage the ISA “brand”, increase transfer complexity, and reduce a key source of stable retail funding for mutual lenders. ^[31]
Some advisers also fear that cautious savers might simply save less, rather than move into riskier assets. ^[32]

7. What can savers do now? Practical steps

This article can’t give personalised financial advice, but there are some common‑sense considerations you might want to weigh up before the new rules arrive in 2027:

Make the most of today’s rules
- If you’re under 65 and can comfortably afford it, you still have two full tax years (2025/26 and 2026/27) where you can put up to £20,000 purely into cash ISAs. ^[33]
Check whether you’re actually affected
- Government data suggests most people pay in well under £12,000 a year, so many savers won’t notice a day‑to‑day difference – at least initially. ^[34]
Decide how much cash you really need
- Financial planners often suggest keeping 3–6 months’ essential spending in easy‑access cash, more if your income is unstable. Money above that may be better suited to longer‑term investments, depending on your risk tolerance. (That’s a rule of thumb, not a guarantee.)
Start learning about investing early
- If you’ve only ever used cash ISAs, consider spending time educating yourself about stocks and shares ISAs – how funds work, what volatility looks like, and the risks as well as potential rewards. Many providers and charities now offer free financial education resources in response to the Budget. ^[35]
Think about diversification, not “all or nothing”
- From 2027, under‑65s who want to use the full allowance will effectively be forced into a mixed strategy: some cash, some investments. That doesn’t necessarily mean taking extreme risk – you could, for example, use a broad, low‑cost multi‑asset fund inside a stocks and shares ISA, alongside a solid emergency cash pot. ^[36]
Watch the Lifetime ISA headlines
- If you’re using a LISA to save for a first home or retirement, keep a close eye on the 2026 consultation and any transition rules. It may still make sense to keep using existing bonuses, but don’t assume the product will look the same in a few years’ time. ^[37]
Consider professional advice for bigger decisions
- For those with large ISA portfolios, multiple properties or complex finances, the combination of the cash ISA cap, higher savings taxes and property tax changes could have big long‑term consequences. An authorised financial adviser or tax specialist can help model the impact for your specific circumstances. ^[38]

8. Key dates and timeline

To make sense of the staggered changes, it helps to keep the timeline in view:

Now – April 2026
- No change to ISA limits; first round of higher dividend tax comes in from April 2026. ^[39]
April 2026 – April 2027
- ISA rules still unchanged; Income tax threshold freezes and other Budget measures start to bite. ^[40]
From April 2027
- Cash ISA cap for under‑65s falls to £12,000, with £8,000 ring‑fenced for investments if you use the full allowance.
- Tax on savings interest and new property income bands kick in. ^[41]
Early 2026–2031
- Consultation on Lifetime ISA replacement.
- ISA, LISA and JISA allowances frozen through to at least April 2031. ^[42]

The upshot?

For many people, especially those who never get close to the current £20,000 cap, life will carry on much as before. But for higher‑saving under‑65s, yesterday’s Budget marks the beginning of a new era: one where it’s harder to shelter large cash piles from tax, and where the government is increasingly determined to push long‑term money into investments rather than deposits.

Whether that ultimately leaves households richer or poorer will depend less on the fine print of tax law – and more on how confidently, and carefully, Britain’s savers adapt to the new rules.

Budget 2025: Cash ISA limit cut to £12,000 a year for some - are you affected?