Savers: £20,000 cash ISA to stay as interest tax set to rise

The cash ISA limit is set to stay at £20,000 a year for all adult savers. Regulations made in September would cut it to £12,000 from April 2027 for savers aged 64 or under, and the Budget on 28 October said that cut will not go ahead. The same Budget proposed higher tax on savings interest held outside an ISA from 6 April 2027. Put together, the message is plain: interest above your allowances in an ordinary savings account will cost more in tax, and the ISA route stays fully open.

The new rates on interest

Interest above your tax-free allowances is taxed today at 20, 40 or 45 per cent. The Finance Act 2026 already raises those to 22, 42 and 47 per cent from April 2027. The Budget proposes two more points, taking them to 24, 44 and 49 per cent across the UK. That second step is due in the Finance Bill 2026-27, so it is not yet law. The Budget's table of rates and allowances sets the figures side by side.

The allowances do not change. The Personal Savings Allowance stays at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. The starting rate for savings still covers up to £5,000 of interest for people with little other income. The Treasury's own estimate is that a basic rate taxpayer would need more than £25,000 in savings outside ISAs before paying any tax on the interest, though that depends on the rate you earn.

What it means for £40,000

Illustration, not a real client. Sunita, a higher rate taxpayer in Barnet, keeps £40,000 in an easy-access account paying 4 per cent, a rate assumed for the example, and has not used her ISA allowance. Her interest is £1,600 a year, and £1,100 of it is above her £500 allowance.

• 2026 to 2027, at 40 per cent: £440 of tax.

• 2027 to 2028, at 44 per cent if the Budget change passes: £484.

• 2027 to 2028 with £20,000 moved into a cash ISA: £800 of interest left outside, £300 of it taxable, £132 of tax.

Moving half the money saves her £352 a year at the proposed rates, and interest inside an ISA is tax-free.

What else the Budget said

New regulations to keep the limit at £20,000, reversing the September ones, are due before Parliament in November 2026. The government will also explore, with the industry, a new incentive for people investing in a stocks and shares ISA for the first time. The £20,000 is a single yearly limit across all your ISAs, and a Lifetime ISA's £4,000 counts towards it.

Before 5 April

This tax year's ISA allowance runs to 5 April 2027. If you hold savings outside an ISA and already pay tax on the interest, using it before then is a simple step, and it is worth more from April if the higher rates pass. Our guide to how the Personal Savings Allowance works shows how to check whether your interest is taxed at all.

About the author

Harvey Dhillon is Founder and CEO of Zmartly, an accountancy firm for small businesses. He grew up in West London and began his career in finance at Barclays, in investment banking and wealth management, before going full-time on Zmartly in 2020.

Featured photo by William Warby on Pexels.