Treasury Overturns Proposed Cut to £20,000 Cash ISA Annual Limit

Chancellor John Healey is overturning controversial plans to slash the annual Cash ISA allowance from £20,000 to £12,000, ensuring British savers retain their full tax-sheltered cash deposit limits ahead of the upcoming tax year. The reversal ditches proposals originally designed by former Chancellor Rachel Reeves to divert retail deposits into domestic equities, offering immediate relief to cash-focused households and building societies across the UK.

Preserving the Full £20,000 Deposit Shelter

Under the previously proposed framework, the total ISA allowance was slated to be restructured from April, capping the cash component at £12,000 while requiring the remaining £8,000 to be directed into stocks and shares or forfeited. The Treasury will now retain the unified, simple £20,000 limit across both cash and investment vehicles.

The policy shift follows warnings from lending institutions and building societies, which cautioned that restricting retail cash deposits would raise borrowing costs and drive up mortgage rates. Cash ISAs remain the nation’s most popular savings vehicle, offering full exemptions from income tax and capital gains tax on interest. Industry data showed Cash ISA subscriptions jumped by £26.1bn last year, outstripping stocks and shares ISA growth by more than four to one.

What Savers Should Do Next

With the £20,000 cap remaining intact, savers can plan their deposit strategy without facing an artificial £12,000 ceiling. Consider taking the following steps:

• Maximise Current Allowances: Keep using your £20,000 annual allowance across fixed-rate or easy-access Cash ISAs without fear of an imminent statutory reduction.
• Review Outside Interest: Non-ISA savings accounts remain exposed to the Personal Savings Allowance. If rising interest threatens to push you over your tax-free savings threshold, moving money into a Cash ISA avoids mandatory HMRC deductions.
• Monitor Portfolio Balance: While cash guarantees capital security, evaluate whether keeping a long-term portion in low-cost index funds within a stocks and shares ISA aligns with your personal inflation-hedging goals.