Cash ISA limit stays at £20,000 as Healey drops planned cut

What happened

Chancellor John Healey has abandoned plans to reduce the annual cash ISA allowance for people under 65, retaining the £20,000 limit across all ages. The decision removes a proposed restriction on how much savers could put into cash accounts that protect their interest from tax.

The reduction, announced by Rachel Reeves last autumn, would have brought the cash allowance down to £12,000 from April for younger savers. Dropping it preserves £8,000 of annual cash-saving capacity for those who would otherwise have faced the lower ceiling.

Healey announced the reversal on Wednesday. Savers will retain the freedom to allocate their £20,000 annual ISA allowance between cash and investments, rather than having their age determine how much of that allowance can be used for cash deposits.

The £20,000 is a combined allowance, not a separate entitlement for each type of ISA. Someone using part of it for a stocks and shares ISA therefore has correspondingly less available for cash contributions within the same annual limit.

Alongside the reversal, the chancellor announced a further two-percentage-point increase in savings interest tax rates from April, taking the rates to 24%, 44% and 40%. That change concerns taxable savings interest; interest earned within a cash ISA remains exempt from tax.

The background

More than 22 million adults in the UK hold an ISA. The accounts provide a tax-protected way to save or invest, with different treatment for the returns involved: cash ISA interest is tax-free, while investments in stocks and shares ISAs are protected from dividend tax and capital gains tax.

The annual contribution limit governs money paid into ISAs, rather than setting a ceiling on the total someone can accumulate over time. Keeping that distinction in mind matters for savers with balances built up through several years of contributions and interest.

Cash and investment ISAs serve different purposes. A cash account allows someone to save without buying stock-market investments. A stocks and shares ISA provides a tax-protected account for investing, but that protection does not remove the possibility that the investments will fall in value.

Reeves' proposals followed lobbying by City firms seeking to encourage greater stock-market investment. Their argument was that reducing the tax advantages available to cash savings could direct more household money towards investments intended to build wealth over the longer term.

The proposed package went beyond limiting new cash contributions. It would also have restricted under-65s from moving savings between cash ISAs and stocks and shares ISAs, adding an age-based condition to decisions about where existing ISA money could be held.

Another part of the plans would have imposed a 22% charge on interest earned on cash held within investment ISAs. That would have affected investors keeping money in cash inside those accounts, introducing a distinction between the tax treatment of cash interest and other investment returns.

Building societies also had an interest in the outcome because they depend on money deposited in cash ISAs as a source of funding. The debate therefore concerned the institutions taking deposits as well as the choices available to individual customers.

The Daily Mail and This is Money campaigned against the proposed reduction after readers raised objections. Their campaign began following the autumn announcement and included a renewed appeal to the chancellor two weeks before Wednesday's decision.

What people are saying

Dame Meg Hillier, the MP who chairs the Treasury committee, welcomed the reversal and credited the campaign with helping secure it. She argued that the proposed arrangements would have confused customers and created difficulties for building societies reliant on cash ISA deposits.

Opposition to the changes also came from within the investment industry. Tom Selby, director of public policy at AJ Bell, supported the decision to abandon the lower cap and said Reeves' reforms had attracted widespread criticism among retail investment businesses.

Rachel Springall, of MoneyfactsCompare, welcomed the outcome for savers but highlighted the preparation already undertaken by providers. Businesses had spent time and money getting ready for the change, costs which the reversal does not recover.

Lawrence Chan, head of Nottingham Building Society, emphasised the value of predictability and choice for customers. His response focused on savers being able to continue using familiar arrangements rather than having to adapt their plans to a new age-dependent cash limit.

Eric Leenders, of banking and finance trade body UK Finance, also backed the announcement. He highlighted the role cash ISAs play in helping households put money aside for the future, reflecting support for the accounts across the wider financial services sector.

However, Michael Healy, chief executive of IG Consumer, criticised the decision. He argued that the chancellor had missed an opportunity to encourage British households to build long-term wealth, underlining the continuing disagreement over whether cash tax relief discourages investment.

Claire Exley, of JP Morgan's investment arm, raised a different concern about the abandoned approach: making ISAs harder for ordinary consumers to understand. Her objection reflected warnings that additional complexity could deter people from investing rather than encourage them to begin.

What happens next

Healey intends to work with the financial sector on a new starter ISA designed to reward first-time investors. That places a proposed incentive for newcomers at the centre of his next steps on investment, rather than proceeding with the planned restriction on cash saving.

For people organising their savings ahead of April, the retained allowance means the cancelled £12,000 ceiling does not need to shape their cash ISA contributions. Those under 65 can continue choosing cash for their full annual allowance, subject to the shared £20,000 limit.

The separate increase in savings interest tax makes the distinction between ISA and non-ISA accounts important. A higher tax rate applies to taxable interest, not to the underlying amount deposited, while the cash ISA exemption protects the interest generated inside the account.

Account selection still involves more than tax treatment. An ISA is a framework for holding savings or investments, not a promise of a particular return. Keeping the contribution allowance unchanged does not set the interest rate that an individual cash ISA provider will pay.

Why this matters

For UK households that prefer not to expose their savings to stock-market movements, the reversal preserves access to the full ISA allowance in cash. It also avoids introducing a divide at age 65, under which otherwise similar savers would have faced different annual cash limits.

The practical effect will vary with how much someone saves. A person contributing £12,000 or less to cash each year would not have exceeded the proposed cap; the extra capacity matters directly to those putting away more. For savers earning taxable interest outside ISAs, April's tax increase is a separate consideration.