- Announcements include a reduced Cash ISA limit of £12,000 from April 2027 for under 65s
- An unexpected 2% tax-rise for savers who exceed their Personal Savings Allowance.
- Freeze on Income Tax thresholds extended to 2030/31.
Chancellor Rachel Reeves made several announcements during the Annual Budget that will impact savers.
From ISA allowance changes through to ‘savings tax’ increases and the continued effects of fiscal drag, our useful round-up is here to help you plan your next move.
Cash ISA allowance reduction
The Chancellor was quick to announce no changes to the overall annual ISA allowance, keeping the limit of £20,000 in place.
However, the amount within this allowance that can be placed into Cash ISAs will reduce to £12,000 per year from April 2027 for those under 65.
Our recent customer research revealed that 97% of our savers thought any reduction to the Cash ISA allowance would be a bad idea, while 89% also stated that cash-based, tax free savings were critical to their financial future.
These findings suggest that the Chancellor’s ISA announcements will not be warmly welcomed, although savers can at least make use of the full £20,000 allowance in both the remainder of this tax year, and next.
It is also worth noting that the announced changes will not impact those who are aged 65 or above once the new limit comes into force. Savers aged 65 and over will still be able to invest the full £20,000 allowance into a Cash ISA if they want to.
Other ISA limits including the £9,000 Junior ISA and £4,000 Lifetime ISA limits, remain unchanged.
A 2% increase in ‘Savers Tax’
In disappointing news for savers, the Chancellor announced an unexpected 2% uplift in ‘savers tax’. This will impact those who exceed their Personal Savings Allowance each year.
Currently, basic rate taxpayers can earn up to £1,000 in interest every year before having to pay tax on interest. Once this limit is exceeded, a 20% tax is applied to any further interest earned. Higher-rate taxpayers incur a 40% tax charge on any interest earned over the £500 higher-tax rate limit.
From April 2027, these savings tax rates will increase from 20% to 22%, and 40% to 42% respectively.
Additional rate taxpayers will also see a tax increase on all savings gained, with their rate increasing from 45% to 47%.
Fiscal Drag, drags on
The chancellor also announced that income tax thresholds will remain frozen until at least 2030/31.
In short, this means that more of the population will move into higher rate tax-brackets due to the thresholds not rising in-line with inflation – a phenomenon know as Fiscal drag.
Managing Director for Savings, Stuart Hulme, comments: “The Chancellor’s Budget may feel like a step backwards for many savers, but it does at least give people the opportunity to make the most of current savings limits through to April 2027.
“In July we rallied for our customers with our Cash ISA research, with many older customers in particular telling us that reducing the Cash ISA allowance was a bad idea. There is therefore some relief for those 65 and over who are often more cautious, reliant on interest income to top up their pensions, and who can’t afford to gamble with their savings over the longer-term.
“With taxes on savings also due to increase, it’s more important than ever to really think about your savings options, and to seek out competitive savings accounts that can grow your money.”
Date Published: 27 November 2025