Cash ISA allowance expected to be cut: What can you do?

After months of rumours, a cut to the cash ISA allowance seems to be on the cards.

The Chancellor of the Exchequer, Rachel Reeves, is expected to limit the amount savers can deposit into cash ISAs each year.

Government officials told the Financial Times that Reeves is planning to cut the annual ISA allowance from its current level of £20,000 to a lower amount for cash ISAs, although the exact limit is not confirmed.

While Reeves is expected to formally announce this news on 15 July in her Mansion House speech, it seems likely that such a major adjustment to the ISA rules won’t come into effect until the next tax-year at the earliest.

Rumours have been swirling about a cut to the cash ISA allowance in recent months, with supporters of this measure saying it could encourage more savers to invest their money into stocks and shares ISAs and other investment products, instead of putting it into cash ISAs and other savings accounts.

However, unlike cash ISAs, investments carry more risk to savers. Even though investing can provide a greater return in the long term, there’s always the chance that you could lose money and get back less than you deposit.

“Ultimately the Government has a goal to stimulate growth, but they must not penalise savers who have no desire to invest. It’s vital that they tread carefully with any reforms and ensure they review the financial education surrounding investing to protect consumers,” Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, cautioned.

Although Springall notes that “stocks can perform better than the returns earned on a simple cash ISA” over the long term, she adds that “many savers are fearful of stocks plunging and losing a portion of their original investment”.

Those warning against lowering the cash ISA limit point to the variety of reasons people save into these accounts, including to build up an emergency fund, to save up for a wedding or other expensive purchase or to help fund their retirement. Because of the risk involved in investing, they suggest that cutting the cash ISA limit is unlikely to prompt these savers to invest.

A major overhaul

A cut to the cash ISA allowance would be a significant change for savers, particularly those at risk of being taxed on their savings interest.

The Personal Savings Allowance (PSA) allows basic-rate taxpayers to earn £1,000 in savings interest without paying income tax, but this drops to £500 and £0 for higher-rate and additional-rate taxpayers respectively.

More than seven million people are predicted to pay higher-rate income tax in the 2025/26 tax-year and, because income tax thresholds are frozen until 2028, it’s likely that even more will move into a higher tax threshold in subsequent years.

Along with higher savings rates, this means that cash ISAs have been increasingly popular as a way to avoid paying tax on savings. In April 2025 alone, £14 billion was deposited into ISAs, according to data from the Bank of England.

But, if the cash ISA limit is lowered, these savers may need to find an alternative home for their money, whether that’s in traditional savings accounts (which means they may be charged tax on the interest earned) or some form of investment (which risks going down in value).

Maximising the tax-free benefits

Until Reeves makes any official announcement on any changes and when they would be implemented, savers can continue to deposit up to £20,000 each tax-year in cash ISAs.

If you’re concerned about the possible impact of lowering the cash ISA limit and you’re yet to use up your allowance for the 2025/26 tax-year, it may be worth taking advantage of this while you can. Although it’s unlikely that any ISA changes will affect your allowance for the current tax-year, the knowledge that you have made the most of your tax-free allowance could give you peace of mind as you prepare for any potential changes in the future.