The Chancellor has scrapped the planned cut to the cash ISA allowance, but tax on savings interest held outside an ISA will rise from April 2027.
The cash ISA U-turn
Last year’s Budget announced that, from April 2027, under-65s would only be able to pay £12,000 a year into a cash ISA. In the Budget on 28 October 2026, Chancellor John Healey reversed that plan. The £20,000 cash ISA limit will be kept for all adult savers, and the proposed rules on cash held in stocks and shares ISAs will not go ahead.
The Government also says it will explore a new incentive for people investing in a stocks and shares ISA for the first time. Details have not yet been published.
Higher tax on savings interest
From 6 April 2027, Income Tax on savings interest will be:
- Basic rate: 24% (currently 20%)
- Higher rate: 44% (currently 40%)
- Additional rate: 49% (currently 45%)
These rates only apply to interest above your tax-free allowances. The Personal Savings Allowance lets basic-rate taxpayers earn up to £1,000 of interest a year tax-free, and higher-rate taxpayers up to £500. Interest earned inside an ISA remains tax-free. The Government estimates that around 12% of taxpayers will pay more as a result.
Lifetime ISA change
From 29 October 2026, first-time buyers who withdraw Lifetime ISA savings to buy a home costing more than £450,000 will pay a 20% withdrawal charge rather than 25%.
What this means for savers
- You can still put up to £20,000 a year into a cash ISA, whatever your age.
- With higher tax on interest outside an ISA from April 2027, more savers, particularly higher-rate taxpayers with larger balances, could find more of their interest is taxed.
- It is worth knowing your Personal Savings Allowance and roughly how much interest you earn each year across all your accounts.
- Some details are still being finalised and may change.
If you are unsure what these changes mean for you, consider speaking to a regulated financial adviser or using free, impartial guidance such as MoneyHelper.
Sources: MoneySavingExpert, Which?, BBC News, HMRC
This article is for general information only and is not financial advice. It reflects announcements made in the Budget on 28 October 2026 and information available on 30 October 2026, which may change. Tax treatment depends on your individual circumstances and may change in the future.