Savings expert have warned that looming changes to ISA allowances will be a blow to those who have sensibly built up their savings. In changes announced in the Budget, the £20,000 ISA allowance will be effectively reduced so that only £12,000 of this will be available for either cash ISAs or stocks and shares ISAs.
The remaining £8,000 will have to be used for stocks and shares ISAs. The idea of the change is to encourage savers to get into investing more. The new allowances will come in from April 2027.
But some critics think limiting how much you can save in cash ISAs will unfairly penalise responsible savers. Henrietta Grimston, financial planner at retirement planning group Saltus, said: “Clients with large cash ISA holdings aren’t typically chasing high returns, they are prioritising security, flexibility and peace of mind.
“For many, cash ISAs offer a simple and low-risk way to manage their savings without worrying about market volatility. Reducing the allowance risks penalising these sensible savers, making it harder to build tax-efficient pots for the future.”
Ms Grimston warned that those approaching retirement could be particularly impacted by the changes “with tax taking a greater bite out of any growth”.
She said: “This could also reduce the overall efficiency of their retirement savings plans, as less can be sheltered in a tax-free wrapper, meaning they may need to save more just to reach the same target.
“It also risks pushing individuals into more complex tax situations, where they may need to submit tax returns for the first time, adding administrative stress and potentially costly mistakes.”
The new allowances will not apply to people aged over 65, who will retain the current ISA allowance.
Improving ISAs
The expert said more action is needed to simplify ISAs. She said one product that could be improved is the Lifetime ISA, where you can deposit up to £4,000 a year, and get a 25 percent bonus on your deposits.
The funds can be used to buy your first home or can be accessed once you turn 60. Ms Grimston said: “If the Government were to consider changes to any ISA product, a positive move could be to make the LISA more flexible and better suited to the realities of people’s lives as their circumstances evolve.
“A wider review of ISA rules – particularly for more targeted products like the LISA and the Innovative Finance ISA – would also be a welcome step in helping savers better navigate their options.”