Cash ISAs - What’s changing under the 2025 Budget

In the 2025 Autumn Budget, the government confirmed major reforms to how ISAs work for most adults. Regardless of age, your total annual ISA allowance will still be £20,000, but the way you can use it will change for those under 65. From 6 April 2027, for savers under 65: 

• You will be restricted to a cash ISA allowance of £12,000 per tax year.
• The rest - up to £8,000, could go into a stocks & shares ISA.
• Or you can choose any combination that suits you, as long as you don’t exceed £12,000 in a cash ISA and your total doesn’t go over the £20,000 limit.
• For those aged 65 or over, the changes do not apply. In effect, the government is restricting how much new money under 65’s can shelter in tax-free cash savings, effectively nudging savers towards investing via Stocks & Shares ISAs. 

The government’s aim and expectation are that this could lead to more widespread adoption of investing rather than cash saving. In turn, the ideological standpoint is that the UK economy will benefit from more money flowing into investment rather than sitting idle in cash. That said whether savers feel comfortable investing depends heavily on their risk tolerance, financial knowledge, and investment horizon.

For many people who relied on cash ISAs as a safe, tax-free place to park money the reduction in the cash ISA limit is a blow. This may force savers to reconsider how they balance safety, accessibility, and return.

It’s plausible that some savers will look at alternative low-risk, tax-efficient vehicles outside ISAs. For savers who want to avoid market risk but lose the ability to shelter large sums in cash ISAs, Premium Bonds could look more appealing. Premium Bonds offer a form of return (prize-based, not interest) and are still tax-free, with a maximum holding of £50,000 per person. 

However, it’s unlikely everyone will shift wholesale into Premium Bonds. The returns are unpredictable (you might win, you might not), so those who want guaranteed modest interest might be dissuaded.

As a firm, we welcome the Chancellor’s proposed changes to the ISA system to encourage more long-term investing. The UK has historically relied too heavily on cash and not enough on long-term investment assets. Lowering the cash ISA allowance for those under 65 is not about restricting choice but about encouraging people to consider investing and boost their longer-term financial position. 

I feel that it makes sense to encourage more cash savers to invest as a means of improving their own financial prospects in the long-term. That’s because returns from investments have tended to beat returns from cash and inflation- as shown below - albeit with the risk of loss along the way. Source: FE Analytics Past performance is not a reliable indicator of future performance Additionally, the government has made clear its desire to get the economy growing more quickly and has identified the UK’s role as a financial hub in achieving that. It therefore makes some sense to encourage savers to put money held in cash to use in stocks or bonds where it can potentially be more productive. With this being said, it is also important to note that 80% of Cash ISA holders are saving less than £10,000 a year, so the legislation is unlikely to have an impact on that mass of the UK market. Therefore, it will be interesting to see how this change is brought to the mainstream markets

The 2025 Budget reforms represent a significant change in how the UK government intends savers to use their money. As a result, many individuals may need to reassess their existing plans and consider whether the security and liquidity of Cash ISAs remain appropriate, or whether Stocks & Shares ISAs could now provide greater long-term value. I would encourage clients to speak with a financial adviser, or at least undertake a more detailed review, to ensure their current strategy continues to align with their objectives. The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. This article is for information only and does not constitute advice. The value of your investments can go down as well as up, so you could get back less than you invested.

'The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. This article is for information only and does not constitute advice. The value of your investments can go down as well as up, so you could get back less than you invested.'