The cash ISA allowance has been cut in the latest Budget, as chancellor Rachel Reeves aims to encourage more people to invest, rather than save.
In line with previous rumours, the cash ISA allowance is set to fall to £12,000 in April 2027 for anyone under the age of 65, although the total annual ISA limit of £20,000 will remain unchanged. The remaining £8,000 will be ringfenced for stocks and shares ISAs only. The cash ISA limit remains unchanged for over 65s, however.
Richard Stone, chief executive at the Association of Investment Companies (AIC), said: “Cutting the cash ISA limit is a milestone towards creating a nation of investors.”
Encouraging savers to move beyond saving cash will improve financial resilience, benefit the economy and help achieve “better financial outcome”.
Indeed, an investor who put £1,000 into a stocks and shares ISA each year since 1999 would now be £50,000 better off than someone who invested in cash, the government estimated.
Peter Rice, investment adviser at digital wealth manager MoneyFarm, also “welcomed the change” as part of a push towards a more investing mindset.
However, he said the success of this change requires “more education and information around the risk of investing”, to ensure people feel comfortable making these decisions.
Not all were positive on the latest decision. Tom Selby, director of public policy at AJ Bell, said Reeves’ decision to cut the cash ISA allowance has only complicated the ISA landscape and it is “hard not to see this as a missed opportunity”.
Instead of encouraging investors to move into stocks, the April 2027 deadline may just cause people to rush into cash ISAs before the allowance is reduced, he said. On top of this, exempting over-65s is “frankly bizarre” as most pensioners will prioritise taking income from their ISA rather than adding to it each year.
“There is scant evidence the proposal to cut the cash ISA allowance will do anything to encourage retail investing,” Selby said.
Brian Byrnes, head of personal finance at Moneybox, agreed that “cutting the cash ISA allowance alone will not create an investing culture”.
The cash ISA remains one of the UK’s most popular savings vehicles, so any cuts or changes in its allocations could impact a significant number of people.
Indeed, 40% of Moneybox customers deposited more than £12,000 in the 2024/2025 tax year, indicating just how many rely on the tax wrapper.
“A strong cash buffer is ultimately what gives people the confidence to invest over time.” Changing these figures risk undermining investor confidence, rather than encouraging it, Byrnes said.
Lifetime ISA reform
Meanwhile, Budget documents revealed the government is planning a consultation in 2026 to implement a new, simpler replacement to the Lifetime ISA (LISA).
This change was well-received by Rachael Griffin, tax and financial planning expert at Quilter, who said the Lifetime ISA is a “confused product in desperate need of simplification.”
Currently, the tax wrapper attempts to help investors save for retirement and save for their first house, but it has “failed to do either effectively”, according to Griffin.
The house price cap of £450,000 has been unchanged since 2017 and has left some savers unable to use the LISA without a penalty. Meanwhile, the 25% withdrawal fee has punished savers facing “already high levels of fiscal strain”.
“For many first-time buyers, the LISA has provided genuine help, and a simplified offering should continue to meet the same need. However, there will be question marks over how and if existing LISA holders will be affected, and the government will need to ensure they are not disadvantaged,“ Griffin concluded.
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