What the reformed Cash ISA allowance could mean for your savings

Launched in April 1999, Individual Savings Accounts (ISAs) are  the most popular ways to save in the UK.

You could contribute to a Cash ISA, which allows you to accumulate interest on your savings, or a Stocks and Shares ISA, where you can invest your wealth.

Better yet, your wealth is entirely shielded from Income Tax, Capital Gains Tax, and Dividend Tax.

According to MoneyAge, ISA contributions totalled £4.2 billion in October 2025, following £2.4 billion in September, showing just how widely used these accounts are.

In July, we explored rumours that the government was planning to reform Cash ISAs to encourage investment in equities rather than holding considerable amounts in cash.

Read more: What could the future hold for Cash ISAs? 

Now, following the 2025 Autumn Budget, some of these changes have been confirmed, and they could significantly affect the way you manage your wealth.

Continue reading to discover exactly how the government has reformed the Cash ISA, and what this could mean for your savings.

The government confirmed it is reducing the Cash ISA allowance for under-65s

As of 2025/26, you can contribute £20,000 a year across all of your ISA accounts, and you can decide how you split the allowance. This means you could place £10,000 into your Stocks and Shares ISA, and a further £10,000 to your Cash ISA. Alternatively, you could put the entire £20,000 in a Cash ISA.

However, from April 2027, the Cash ISA allowance for savers below the age of 65 will be reduced to £12,000 in a single tax year.

You will still have an overall ISA allowance of £20,000, but the remaining £8,000 will be reserved for your Stocks and Shares ISAs.

Meanwhile, if you’re over the age of 65, you will be exempt from this reduction.

The government claims the move will encourage more savers to invest their wealth rather than leave it in cash accounts.

This does make sense on the surface. Equities and other forms of investment do tend to deliver higher long-term returns when compared to cash savings accounts.

In fact, MoneyWeek states that if you deposited £1,000 into the average Cash ISA when they were first launched in 1999, that account would be worth £2,079 today.

Meanwhile, the same investment into a typical UK All Companies fund through a Stocks and Shares ISA could be worth £3,787 today – almost twice as much.

More competitive returns on your wealth could give you a better chance of achieving your long-term goals – such as retirement – much more quickly.

However, it’s worth noting that the ISA reforms may not be as well-received by risk-averse individuals.

If you prefer the security of cash over the potential ups and downs of investments, you might simply see the change as a way to limit your tax-free savings options.

There are also potential restrictions on using cash within Stocks and Shares ISAs to prevent people from bypassing the rules.

Indeed, HMRC has suggested that transfers from Stocks and Shares ISAs to Cash ISAs may be restricted for those under the age of 65, limiting flexibility for many.

Of course, these proposals might change in the future after consultations, but it’s still vital to be aware of how your wealth might be affected.

The Cash ISA reforms could mean more of your wealth is subject to tax in the future

The reduction in the Cash ISA allowance could make a noticeable difference over time, especially if you’re more risk-averse.

For example, you can currently move up to £20,000 into a Cash ISA each year without it facing tax. Yet, when the allowance drops to £12,000, you may be forced to move any cash above this amount into a taxable account.

When you hold cash in a non-ISA savings account, you will pay Income Tax on any interest that exceeds your Personal Savings Allowance (PSA). In 2025/26, this stands at:

●        £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.

You’ll then pay Income Tax at your marginal rate on any interest that exceeds the PSA.

Imagine you hold £30,000 outside of an ISA, and it earns 4% interest (£1,200). You would pay an Income Tax charge of:

●        £40 as a basic-rate taxpayer

●        £280 as a higher-rate taxpayer

●        £540 as an additional-rate taxpayer.

While this might not seem like much on a year-to-year basis, it can quickly add up over time, especially if you’re a higher earner.

Fortunately, since the changes to the Cash ISA won’t come into effect until April 2027, you still have time to make the most of your current £20,000 allowance in both 2025/26 and 2026/27.

You may also want to take the time to review other saving and investment opportunities to ensure your money continues to work effectively.

Indeed, you could lock in more competitive rates now rather than leaving cash idle in low-interest accounts, helping protect the real-terms value of your wealth against inflation.

A financial planner could help you stay abreast of changes and remain focused on your plans

It can be challenging to stay abreast of changes in financial legislation.

Fortunately, a financial planner could help you assess how any changes could affect your plans and guide you on how best to allocate your money between Cash and Stocks and Shares ISAs.

We do so by considering your risk tolerance, investment time frame, and future goals.

We can also use cashflow modelling software to show how the new rules could affect the growth you achieve and the tax you pay when using different savings vehicles.

For example, if you want to continue prioritising low-risk cash savings while remaining within the ISA limits, we could help you identify the most competitive rates and explore how investing could make your money work harder.

Get in touch

We could help you secure some peace of mind about the upcoming Cash ISA reforms and ensure you continue making informed decisions about your wealth.

Email info@athertonyork.co.uk or call us on 0208 882 2979 to find out more.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning or cashflow planning.

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.