Chancellor Rachel Reeves has confirmed that the government will maintain the £20,000 Cash ISA limit, but that some of it must be invested in stocks and shares.
From April 2027, £8,000 of the allowance will be "exclusively for investment", Reeves announced, with over 65s retaining the full cash allowance.
Industry experts had been expecting a blanket cut to the allowance, to either £10,000 or £12,000.
Less than one in three subscribers put in more than £12,500 into their cash ISA, according to the latest government savings data, with the average subscription sitting at just £7,000.
Royal London’s consumer finance expert, Sarah Pennells, commented: "The Chancellor’s confirmation that the cash ISA limit will fall to £12,000 from April 2027 won’t affect the majority of ISA savers. Our research shows that only 16% of ISA holders save or invest the maximum £20,000 annual allowance. The fact that the full £20,000 cash ISA allowance is being retained for those over the age of 65 will be welcome by those pensioners who rely on cash savings to boost their retirement income, but who don’t necessarily want to invest.
"The FCA has estimated that there are 8.6 million people with £10,000 or more in cash savings that could be invested. Our research shows that 6 in 10 people with money in cash ISAs could be persuaded to invest in a Stocks and Shares ISA.
"However, it also shows that concern among consumers that they don’t have enough money to invest, and a lack of understanding of investing, are among the main barriers. Reducing the cash ISA limit will do nothing to address this.
"However, the introduction of Targeted Support, from April, will enable financial providers to offer personalised guidance to those who don’t have an adviser, which could encourage some who previously haven’t thought about investing, to do so."
Rob Hillock, head of personal financial planning at Broadstone, said: "Cutting the cash ISA limit to £12,000 later this decade is a strong signal that the Chancellor wants more people investing rather than holding large amounts of cash. This would help potentially boost long-term returns for savers and will also enable the Government to channel more capital into UK equities and the wider economy.
“Protecting the full cash ISA allowance for over 65s is a smart move that will enable pensioners to de-risk as they enter retirement, recognising a greater need for more accessible and lower-risk savings, but further limits tax efficient vehicles for those under 65 looking to save securely.”
Adam Craggs, partner and head of tax, investigations and financial crime at RPC, commented: “The public are likely to respond to a cash ISA cut in the Budget with a mix of frustration, caution and political scepticism. Many already indicate that they would not move into stocks and shares ISAs. Instead, they may shift savings into ordinary accounts, even if that means paying more tax, or they may simply save less.
“Financial institutions, especially building societies, are also likely to raise concerns that a reduced cash ISA allowance would weaken their deposit base and limit their ability to fund mortgages, with potential knock-on effects for the housing market.
“Politically, the cut risks being viewed as unfair or poorly targeted — more akin to a stealth tax than a measure to encourage investment. MPs and consumer advocates have questioned whether reducing the allowance would achieve its intended outcome, suggesting it could do more harm than good. If taken forward, the debate is likely to focus not only on savers’ immediate irritation, but also on whether the policy undermines broader economic and financial-stability goals.”
Greg B Davies, head of behavioural finance at Oxford Risk, added: “Recent speculation about restricting cash ISA allowances misses a more fundamental problem: that these products are behaviourally flawed to begin with. By combining emotional comfort with a tax benefit, people are rewarded for holding onto cash, even when investing that money would serve their long-term needs more effectively.
“The average investor loses 2–3% annually from holding too much cash. This isn't a knowledge problem; it's an emotional unwillingness to move from what feels safe to what's suitable.
“Any policy limiting this psychological crutch will ultimately help investors to escape the trap of short-term comfort over building long-term financial resilience and should be applauded.”
