The recent proposal by UK Chancellor Rachel Reeves to significantly reduce the annual tax-free Cash ISA allowance from £20,000 to £12,000 for savers under 65 has sparked concern among many. This change, set to take effect in 2027, has led to a backlash, with a majority of Cash ISA holders expressing dissatisfaction with the announcement.
A survey conducted by Skipton Building Society involving 563 Cash ISA holders revealed that 67% reacted negatively to Reeves’ announcement. Furthermore, 75% of respondents believe the government should encourage savings rather than restrict them. A notable 73% feel the proposed changes diminish the value of holding a Cash ISA, while over half, 53%Alex Sitaras, head of savings and partnership products at Skipton, has offered several strategies for savers to mitigate potential impacts. He emphasizes the importance of diversifying across different ISA types. Savers can still maximize the overall ISA limit, which remains at £20,000, by allocating funds between Cash ISAs and Stocks & Shares ISAs. According to Sitaras, this strategy not only diversifies risk but also aims to keep as much money as possible shielded from tax.
Sitaras advises savers to act quickly and utilize this year’s £20,000 allowance before any changes come into effect. He also highlights the Personal Savings Allowance, which allows basic-rate taxpayers to earn up to £1,000 in interest annually without incurring taxes. Under current conditions, a basic-rate taxpayer can save up to £25,000 at a 4% interest rate before facing any tax liabilities, though this threshold lowers for higher-rate taxpayers.
Another option Sitaras suggests is investing in Premium Bonds, which allow individuals to hold up to £50,000 tax-free, with returns based on monthly prize draws rather than guaranteed interest. For families, he points out that Junior ISAs offer a way to build intergenerational wealth, allowing parents to contribute an additional £9,000 per child annually, although those funds become accessible to the child at age 18.
Sitaras warns that the proposed cap reduction could lead to more individuals under 65 paying taxes on savings that were once tax-protected. He stresses the need for savers to make informed decisions quickly.
“Stocks and Shares ISAs can be an effective way to grow wealth tax-efficiently, but they must align with individual long-term goals,” he states. “These changes serve as a reminder for savers to start considering investments, but they should not dictate financial decisions on their own.”
The implications of Reeves’ proposal have prompted nearly 44% of surveyed savers to consider reassessing their savings strategies. Among them, 26% anticipate shifting more funds into investments, while 20% plan to increase contributions to workplace pensions, which may offer a more tax-efficient alternative.
Interest in obtaining financial advice has surged, with over 52% of respondents indicating it will be essential to navigate the changes effectively. Many seek guidance to maximize returns, avoid costly mistakes, and understand how the reduced allowance impacts their financial goals.
Sitaras acknowledges the emotional response from savers: “This announcement has understandably unsettled many Cash ISA holders, particularly those under 65. Individuals who have worked hard to create a financial cushion are now uncertain about how these changes will affect them.”
He asserts, “There are still numerous smart, tax-efficient options available; the key is understanding which strategies truly align with individual goals. Whenever allowances change, it can feel like the rules of the game have shifted overnight. Taking a moment to reassess and clarify the basics can make a significant difference.”
Skipton Building Society offers expert financial advice through its My Money Reviews service, available to all, not just members. This initiative aims to assist individuals in navigating their financial landscape amidst the evolving regulatory environment.
