11 June 2026
In an attempt to encourage younger people to be more ambitious with their money, a limit on the annual savings limit will be imposed on Cash ISAs for people under 65.
From 6 April 2027, the annual savings limit will fall from £20,000 to £12,000, forcing those who want to grow their wealth to seek other avenues to do so.
Those who are only familiar with ISAs may soon find themselves having to understand their Personal Savings Allowance, something that many current savers fail to fully reckon with.
What is the Personal Savings Allowance?
When savings are stored in a bank account, the only way that they can increase an individual’s wealth is through generating interest.
This is typically an inefficient way to grow wealth, but it can make a subtle difference over time.
Where complications arise is with a lack of awareness of the Personal Savings Allowance that can result in an unforeseen tax bill.
Depending on your tax position, determined by your level of income, your Personal Savings Allowance will differ dramatically.
Once your savings have generated income above your own Personal Savings Allowance, you will need to pay tax on the excess.
The thresholds are:
As may be apparent, Additional-rate taxpayers will pay tax on all interest generated from savings except for those that are specifically in a tax-efficient wrapper like an ISA.
This is why the changes to ISAs may now have an effect on the level of tax paid by those simply looking to grow their own wealth.
Will the changes to ISAs make people pay more tax?
Depending on how you choose to respond to the reduction in the annual savings limit for Cash ISAs, you may find yourself with a higher degree of tax exposure than before.
Moving your money into a more traditional bank account may not be wise, as it will either struggle to grow due to low interest rates or place you in a challenging position for tax, given the limited scope of the Personal Savings Allowance.
Those who are paid and have tax managed through PAYE are at a greater risk of being hit unexpectedly by a tax bill, as they are less familiar with handling tax information.
For those who manage their tax using a Self Assessment return, they should be able to adjust to the impact that interest has on their exposure.
Self Assessment tax returns have a dedicated space to declare interest and the impact of interest will be apparent once the tax bill is calculated.
The real issue is whether people are aware of the disparity between the tax efficiency of ISAs and the tax exposure of other savings accounts.
While loading up a Cash ISA to reach the annual limit as close to the start of the tax year as possible is a good strategy, mirroring that with other accounts may result in a steep tax bill when interest starts accumulating.
Ultimately, the best approach to growing wealth has to be with an eye on tax exposure.
This can be achieved through discussions with an expert tax adviser, as it is challenging to keep up with all tax obligations.
We can review your savings strategy to help you understand where your tax exposure is and how you may approach things more tax-efficiently.
The reduced impact of Cash ISAs should not mean an inflated tax bill.
Get in touch with our expert team for professional tax advice.