Money expert Martin Lewis has addressed the widely rumoured changes to Cash ISAs which could see deposits limited to just £4,000 a year as he called on people to use their allowance now.
Currently, the tax-free savings accounts allow a saver to deposit £20,000 in a single tax year and protect all the interest generated in them from being taxable. But there are rumours, not denied by the government, that Chancellor Rachel Reeves could be set to reduce that amount, possibly to as low as £4,000, in a bid to encourage people to use stocks and shares investment ISAs instead.
In an update via his Money Saving Expert website, Martin Lewis asked if the current £20,000 Cash ISA limit is ‘drawing its final breaths’ as he told savers that ‘using your allowance sooner is likely safer’.
Martin said on MSE: “The new tax year is here, so you’ve a brand new £20,000 ISA allowance to shelter savings & investments from tax. I know I talked about this a fortnight ago, but that was so last (tax) year.
“The Chancellor has been evaluating cutting the cash ISA allowance – rumours say to as low as £4,000 – and if that does happen, it’s thought it’d likely be announced in the Autumn Budget (though with so much current uncertainty, anything could or couldn’t happen, at any time).
“The concept behind it is that it’d encourage people to put the money in shares ISAs instead (personally, I’m sceptical if it’d work – many will just keep saving but pay more tax). Of course, everything is pure supposition – I doubt any firm decision has been made yet.
“But if it happens as rumoured, it WOULDN’T impact money already in cash ISAs, it’d just cut what you can put in, in future. Whether it’d start immediately, or in January or April 2026, no one knows (including at this point, I suspect, Rachel Reeves). Yet if you plan to save in a cash ISA, all of this would suggest getting it in sooner would seem safer.”
Anyone who fails to use up their current £20,000 ISA limit for this tax year, running from April 6 2025 to April 5, 2026, will lose it forever when next tax year starts. That’s because it resets every tax year.
But if you do maximise the allowance, you can keep that £20,000 in, tax free, for as long as you want, as the £20,000 limit is only on deposits per year – once it’s in there, you can add next year’s allowance and the following year’s allowance on top. In this way, some savers have more than £100,000 in their Cash ISAs, tax free, because they deposited the full £20,000 each year for five years or more.
They are useful because savings outside of an ISA can be taxed. If you earn £1,000 of savings interest in a single tax year, you owe tax on it. For those on higher income (£50,270), you can only earn £500 of interest, and those on very high income (£125,000) can’t earn any interest at all without paying tax on it.
Martin Lewis says that right now, the best Cash ISAs include Trading212 at 5.04% and Moneybox at 5.03%, but gives a full rundown on his MSE site.
Government spring statement documents released in March said: “The Government is looking at options for reforms to Individual Savings Accounts that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission.
“Alongside this, the Government is working closely with the Financial Conduct Authority to deliver a system of targeted support to give people the confidence to invest.”
Richard Fearon, chief executive of Leeds Building Society, said: “We remain concerned about the long-term threat of a reduction in Cash ISA allowances.
“Reducing the amount which can be saved would have significant effects on savers, mortgage rates and wider aims to increase the size of the mutual sector.
“We will continue to make the case on behalf of our members for retaining the current rules, whether that comes as a single change or part of wider ISA reforms.”
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