26 November 2025
If you are covering the Chancellor cutting the annual Cash ISA limit to £12,000, please see the following comment from Rachael Griffin, personal tax expert at Quilter:
“The Chancellor’s decision to cut the annual Cash ISA limit from £20,000 to £12,000 from April 2027 raises big questions about whether this will genuinely encourage savers to invest. On paper, nudging people away from cash makes sense, but in reality, Cash ISAs are deeply ingrained in UK saving habits. Many savers value the certainty they offer, even though over the long term, investing in growth assets typically delivers better inflation-beating returns.
“This change is unlikely to trigger a rush into Stocks and Shares ISAs. Instead, we may see money diverted into Premium Bonds or other perceived safe havens. The carve-out for over-65s adds another layer of complexity. It appears designed to protect older savers who rely on cash, while pushing younger people toward investing. But ISAs were meant to be simple and flexible. Splitting allowances between cash and investments, with age-based exceptions, undermines that simplicity.
“For basic-rate taxpayers, the impact may be modest, but higher and additional-rate taxpayers could face significant extra tax on savings above the new cap. Young professionals saving for a house deposit – typically short-term money held in cash – could be penalised. Transfers between ISA types are already tricky; introducing caps and split allowances will make them even harder to navigate.
“HMRC data shows that 66.2% of ISA subscriptions last year were into cash, with millions contributing irregularly and in small amounts. Stocks and Shares ISAs remain the preserve of a smaller group of consistent investors with larger balances. Younger savers tend to contribute frequently but hold modest pots, while older savers have bigger balances but make fewer new contributions. This mix suggests a cap on cash may not shift behaviour as policymakers hope – it risks disengaging savers rather than driving them into equities.
“If someone wants to save the extra £8,000 beyond the new Cash ISA cap and insists on staying in cash, they could consider money market funds within a Stocks & Shares ISA. However, these are not the same as a guaranteed cash deposit – they carry some risk, even if minimal. Alternatively, low-risk, off-the-shelf portfolios are available, but the danger is that many savers will simply default to a taxable account, creating new tax liabilities depending on their band and Personal Savings Allowance.”
Scenario 1: Basic Rate Taxpayer (PSA available)
- PSA: £1,000
- Tax rate: 20%
- In the first two years, interest remains within the PSA, so no tax is due.
- From Year 3 onwards, interest exceeds the PSA, creating taxable interest.
- Over 5 years, tax per person is £266, or £532 for a couple.
Scenario 2: Basic Rate Taxpayer (PSA already used elsewhere)
- PSA: £0
- Tax rate: 20%
- All interest is taxable from Year 1.
- Over 5 years, tax per person is £1,072, or £2,143 for a couple.
Scenario 3: Higher Rate Taxpayer (PSA available)
- PSA: £500
- Tax rate: 40%
- Year 1 is tax-free, but from Year 2 onwards, interest exceeds PSA.
- Over 5 years, tax per person is £1,208, or £2,416 for a couple.
Scenario 4: Higher Rate Taxpayer (PSA already used elsewhere)
- PSA: £0
- Tax rate: 40%
- All interest is taxable from Year 1.
- Over 5 years, tax per person is £2,143, or £4,286 for a couple.
Scenario 5: Additional Rate Taxpayer
- PSA: £0 (none available for this band)
- Tax rate: 45%
- All interest is taxable from Year 1.
- Over 5 years, tax per person is £2,411, or £4,822 for a couple.
