How many savers will be impacted by new cash Isa rules?

From 2027, the cash Isa allowance will plunge from £20,000 to just £12,000. But with fewer than a quarter of account holders maxing out their tax-free savings pot, how likely is it to affect you?

The plans were set out by Chancellor Rachel Reeves in the Autumn Budget on Wednesday 26 November. There are exceptions to the new rules, and HMRC data suggests that only a small proportion of savers will be affected by the changes.

Here, Which? explains who stands to lose the most from the savings shake-up and how you can continue to shield your money from tax. 

What happened in the Autumn Budget?

After months of speculation, the Chancellor bit the bullet and cut the cash Isa allowance from its current level of £20,000 to £12,000. The changes take effect in April 2027, with two key exceptions.

• Savers over 65 are exempt and will retain the full £20,000 cash allowance
• You can keep the full cash allowance if £8,000 of it is held in a stocks and shares Isa

The Chancellor has been clear that she wants more savers to consider investing, and the reforms are designe\d to encourage that shift.

• Find out more: what was in the Autumn Budget?

Most savers still won't have to pay tax

Isas, or individual savings accounts, allow you to shield a proportion of your money from HMRC. There are four main types for adults, but cash Isas remain the most popular option. HMRC figures show savers deposited a record £14bn in April 2025 alone. 

The good news is that most of cash Isa savers won't pay a penny in tax once the new rules come in. 

The latest HMRC data shows that only 20.5% of cash Isa holders used the full £20,000 allowance in 2022–23. Around 27% held between £2,500 and £12,499, while 45% had balances of £2,499 or less.

The average subscription was £5,296 that year, rising to a provisional £6,993 in 2023-24 – both comfortably below the forthcoming £12,000 limit. 

However, if we break the figures down by age, 74% of cash Isa savers are under 65 years old and could be impacted by the upcoming allowance cut. 

• Find out more: cash Isa rules and allowances

Who will be hardest hit?

Around two million cash Isa account holders had balances over £12,500 in 2022-23. These savers will need to find a home for money they can no longer shelter within a cash Isa. 

If you want guaranteed interest, a traditional savings account – such as an easy-access or fixed-term bond – is the most likely alternative. But interest earned outside an Isa counts towards the Personal Savings Allowance (PSA).

Basic-rate taxpayers can earn £1,000 before paying tax on savings interest. For higher-rate taxpayers the threshold is £500, and additional-rate taxpayers have no PSA at all.

Savings interest is taxed at the same rate as other income. From April 2027, the basic rate will rise from 20% to 22% and the higher rate from 40% to 42%.

• Find out more: Chancellor to raise tax on savings

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How much worse off could you be?

To illustrate the impact, assume you save the £8,000 difference between the current and future allowance in a one-year fixed account paying 4.5% AER.

If you’re a basic-rate taxpayer with no other savings outside an Isa, you would have scope to save an additional £14,223 before breaching the PSA. For higher-rate taxpayers this falls to £3,111. 

Now suppose you're lucky enough to have a nest egg worth £30,000 and stashed it in the same one-year bond. 

A basic-rate taxpayer would generate £350 of taxable interest and pay £70 tax at today’s rate. A higher-rate taxpayer would have £850 of taxable interest and a £340 tax bill.

From April 2027, the basic-rate taxpayer would pay around £7 more, while the higher-rate taxpayer’s bill would rise by about £17.

Should you invest instead?

From April 2027, savers will still be able to protect the remaining £8,000 from tax, but only if it's placed in a stocks and shares Isa. Yet a Royal London survey carried out before the Budget found that 40% of cash Isa savers are unwilling to invest, favouring cash instead.

Risk remains the biggest concern. Among those who don’t currently invest, 35% worry about losing money, and 12% are concerned about being unable to access funds quickly.

It’s true that investments rise and fall in value. Shares can be more volatile than lower-risk assets such as bonds. But investing is designed for the long term.

Five years is typically the minimum recommended timeframe, and the longer you invest, the greater your chances of capturing the market’s strongest periods of growth. 

Analysis from AJ Bell suggests that someone investing £1,000 a month in the IA Global sector between 1999 and the end of 2024 would have earned £49,211 more than the average cash Isa saver.

If you’re new to investing, think about how much risk you’re comfortable taking. Diversifying across countries and asset classes – funds, trusts, shares and bonds – can help manage risk. A mix of cash and investment Isas may suit those taking a more cautious approach. 

• Find out more: how to invest: a beginner's guide

What can cash Isa savers do now?

The most effective step is to use the full £20,000 allowance while it remains in place. You still have the current tax year (2025-26) and 2026-27 to benefit.

Cash Isa deals tend to become more competitive towards the end of the tax year, with many strong rates appearing between February and April.

But you don’t have to wait. The annual Isa allowance resets on 6 April, and using it early in the tax year can give your savings longer to earn interest.

Most people save gradually rather than in one lump sum, so starting early can make it easier to budget across the year and maximise your allowance.

This table shows the current top instant-access and fixed-rate cash Isas, ordered by term:

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• Find out more: best cash Isa rates 2025