Cash ISA U-Turn Explained: Your £20,000 Allowance Stays

If you spent the past year planning around a smaller cash ISA allowance, you can stop. In his first Autumn Budget on 28 October 2026, Chancellor John Healey scrapped the planned cut that would have reduced the amount under-65s could put into a cash ISA from £20,000 a year to £12,000 from April 2027. The full £20,000 allowance stays, for savers of all ages.

That is genuinely good news for cash savers. But it is not the whole story. The same Budget raises the tax on savings interest held outside an ISA from April 2027, and it promises a new “starter” ISA for first-time investors with no details yet. The U-turn changes the maths in one place and sharpens it in another.

What was supposed to happen

At the Autumn Budget in November 2025, the previous Chancellor, Rachel Reeves, announced that from 6 April 2027 savers under 65 would be able to pay only £12,000 a year into a cash ISA. The overall ISA allowance would have stayed at £20,000, but the remaining £8,000 would have been reserved for investments such as a stocks and shares ISA. Savers aged 65 and over would have kept the full £20,000 cash allowance.

The stated aim was to steer more long-term money into investing. Anti-avoidance measures were also prepared, including a proposed ban on transfers from stocks and shares ISAs into cash ISAs for under-65s and a 22% charge on cash interest inside stocks and shares ISAs. Critics called the plan complicated, arguing many savers would simply have moved money into taxable accounts instead.

What the U-turn actually changes

Healey’s announcement reverses the cut in full. From April 2027, every adult keeps the £20,000 annual ISA allowance and can use it for cash, investments, or a mix of both, exactly as today. There is no separate, lower cash limit for under-65s.

The anti-avoidance measures built to police the cut should also fall away, though this is not yet confirmed in legislation. AJ Bell’s Tom Selby said he assumed they “will also be binned” — the strong expectation, not yet law.

Scrapping the cut does not make cash saving more rewarding. It simply stops it becoming harder. The real change to watch is the tax bill on money held outside an ISA.

What still changes: savings tax rises in April 2027

From 6 April 2027, the rates of tax on savings and property income rise by four percentage points from today’s rates, to 24% for basic-rate taxpayers, 44% for higher-rate taxpayers and 49% for additional-rate taxpayers. That four-point rise is the combined effect of two steps: a two-point rise already scheduled from last year’s Budget, plus a further two points added in this Budget.

Two protections soften the blow: interest inside an ISA stays tax-free, and most savers still have a Personal Savings Allowance — £1,000 a year for basic-rate taxpayers, £500 for higher-rate taxpayers — before tax applies. The Treasury says 84% of taxpayers will see no increase from these changes.

A worked example shows why the ISA matters more after April 2027. A basic-rate taxpayer with £40,000 in an easy-access account paying 4% earns £1,600 a year; £600 sits above the £1,000 allowance. At today’s 20% rate the tax is £120; at 24% from April 2027 it is £144. The same £40,000 inside a cash ISA would earn the interest tax-free.

Cash ISA vs taxable savings: the new comparison

Feature	Cash ISA	Taxable savings account
Annual limit	£20,000 of new money per tax year	No limit
Tax on interest	None, at any balance	Tax-free up to your Personal Savings Allowance, then 24%, 44% or 49% from April 2027
Best for	Money you want sheltered from tax, year after year	Money above your ISA allowance, or when you need a rate no ISA matches

An ISA is a tax wrapper, not a rate guarantee: on smaller balances inside your allowance, a materially higher taxable rate can still win. Compare the after-tax return, not just the headline rate.

What about the new “starter” ISA?

Healey also said the government will work with the industry to create a new “starter” ISA to help people invest for the first time. No figures, eligibility rules or launch date have been announced, and it should not be confused with the separate First Time Buyer ISA planned from April 2029, which is expected to offer a 25% government bonus up to £20,000 for first-home buyers.

Until details arrive, read this modestly: the government still wants more people to invest, but has switched from pushing them by restricting cash to, in principle, encouraging them. Do not delay a real decision waiting for a product that may not exist for some time.

What savers should do now

Use this tax year’s allowance deliberately. ISA allowances do not carry forward: use it or lose it by 5 April. You do not need to use the full £20,000, and you should never raid an emergency fund to fill an ISA. But if you have taxable cash earmarked for the medium term, moving it into a cash ISA before April 2027 shelters its future interest at exactly the moment outside rates rise.

Review, don’t rush, past decisions. Some savers moved money early in anticipation of the cut; as Oxford Risk’s Greg Davies noted, a policy meant to move people out of cash may have encouraged some to put more into it. If you acted early, check the money is still in the right place — but do not churn accounts for the sake of it.

Split deliberately if you invest too. You can split the £20,000 across cash and stocks and shares ISAs in any combination. Keep short-term money — an emergency fund, a deposit needed within a year or two — in cash, and only put money you will not need for several years into investments, where values can fall as well as rise.

Check your rate, not just your wrapper. Cash ISA rates change and bonus rates expire, so check your account remains competitive — a tax-free account paying a poor rate can still lose to inflation.

What this means outside the UK

ISAs are UK-only, so this does not change rules elsewhere. The lesson travels: compare what you keep after tax, not what is advertised — whether a high-yield account, a certificate of deposit, or a Roth IRA in the United States.

Frequently asked questions

Can I still put £20,000 into a cash ISA next year?

Yes. The planned cut to £12,000 for under-65s from April 2027 has been scrapped, so the cash ISA allowance stays at £20,000 for adults of all ages, within the overall £20,000 ISA allowance.

Does the U-turn mean savings tax is unchanged?

No. Tax on savings interest outside an ISA rises from April 2027 to 24% for basic-rate taxpayers, 44% for higher-rate taxpayers and 49% for additional-rate taxpayers. Interest inside an ISA remains tax-free.

What happens to the anti-avoidance rules for the old cut?

They policed a cut that no longer exists, and experts expect them to be dropped, including the proposed transfer ban. Confirmation should come in the Finance Bill.

Should I wait for the new starter ISA before investing?

No. No details, dates or figures have been announced. Judge existing stocks and shares ISAs on their own terms, and revisit the starter ISA when its terms are actually published.

The U-turn is, above all, a restoration of choice. Savers can keep using cash ISAs in full, investors keep their route, and nobody is forced from one to the other by an allowance cap. The smart move now is unglamorous and effective: check your balances, check your allowance, check your rate — and let the tax change from April 2027, not the headlines, decide where your savings sit.