The current overall ISA allowance is £20,000 and there are no limits on the Cash ISA, meaning if you wanted to, you could save £20,000 in a Cash ISA each year. The proposed changes suggest imposing a limit of £4,000-5,000 on the Cash ISA (similar to the limits on Lifetime ISAs - £4,000 and Junior ISAs - £9,000).
WHY IS THIS HAPPENING?
Well, the goal is to redirect some of the £300bn currently held in Cash ISAs into Stocks & Shares ISAs which in turn could boost UK listed companies and make the IPO (Initial Public Offering) market, more attractive in the UK. In short, it hopes to incentivise investing over saving and push us up on the ladder of investment worthy markets.
THE IMPACTS ON YOU:
Simply put, you benefit less from tax free savings. In the UK, we have a Personal Savings Allowance which permits up to £1,000 tax free interest for basic tax payers, £500 for higher tax payers and nil for additional tax payers. The benefit of having the ISA allowance means you can save more money and earn interest without worrying about the tax-man.
The potential slash in the Cash ISA limit means less potential savings for you.
WHAT CAN YOU DO NOW?
- Nothing - you don't have to do anything if you don't want to or are unsure
- Evaluate your risk tolerance - you can consider boosting your investments in place of saving and still enjoy tax-free earnings within the £20,000 limit
- If you regularly deposit large sums into a Cash ISA:
- Consider using the full allowance before any changes are effective
- Consider transferring funds into a high yielding Cash or S&S ISA
Nothing is official just yet, so for now we sit tight until the Mansion House speech on 15th July 2025.
✉️ This newsletter was originally sent to subscribers on 1st July 2025. Want to get future newsletters straight to your inbox? Subscribe here.