The UK government’s proposal to reduce the annual tax-free Cash ISA allowance from £20,000 to £12,000 for individuals under 65 has sparked significant concern among savers. This move, announced by Chancellor Rachel Reeves, has been met with criticism, as a survey conducted by Skipton Building Society found that 67% of Cash ISA holders disapprove of the change.
The building society’s survey of 563 Cash ISA holders revealed that a substantial 75% believe the government should encourage savings rather than impose limits. Furthermore, 73% of respondents feel this reduction diminishes the advantages of holding a Cash ISA, while 53% consider it unfair to those who have structured their finances around the existing allowance.
With the new allowance set to take effect in 2027, the survey indicates that just over half (53%) of participants expect to reach the new limit once it is implemented. Additionally, 23% of respondents already max out the current £20,000 cap regularly, while another 27% have done so once or twice.
Expert Guidance for Savers
In response to these changes, Alex Sitaras, head of savings and partnership products at Skipton Building Society, offers several strategies for savers. His first recommendation is to diversify across different ISA types. By splitting investments between Cash ISAs and Stocks & Shares ISAs, savers can still maximise their overall annual ISA limit of £20,000 while managing risk effectively.
Sitaras emphasizes the importance of acting swiftly to make full use of the current £20,000 allowance before any modifications take effect. He also highlights the relevance of the Personal Savings Allowance, which permits basic-rate taxpayers to earn up to £1,000 in interest tax-free each year. With a 4% interest rate, a basic-rate taxpayer can save up to £25,000 without incurring tax liability, although this allowance decreases for higher-rate taxpayers.
For those looking for alternative savings methods, Sitaras suggests considering Premium Bonds, which allow individuals to hold up to £50,000 tax-free with returns based on chance rather than guaranteed interest. Additionally, he notes that parents can explore Junior ISAs, permitting contributions of up to £9,000 per child annually tax-free, with the funds becoming accessible to the child at age 18.
Navigating the Changing Landscape
Sitaras warns that the significant reduction in the Cash ISA cap means many individuals under 65 may face tax liabilities on savings previously protected. He stresses the necessity of making informed decisions now. “Stocks and Shares ISAs can be an excellent means of growing wealth in a tax-efficient manner, but they should align with one’s long-term financial goals,” he explains.
Amid the announcement, 44% of survey respondents expressed the need to reassess their savings strategies. Notably, 26% indicated they would likely shift more funds into investments, while 20% planned to increase contributions to workplace pensions, recognizing them as a potentially more tax-efficient option.
The survey also underscores a strong desire for financial advice, with 52% of respondents indicating that obtaining guidance is crucial to navigate the upcoming changes. 41% of those surveyed plan to seek advice on maximizing their returns, while 30% want assistance in understanding the implications of the reduced allowance for their long-term financial goals.
Sitaras acknowledges the anxiety many savers feel in light of these changes. “People who have diligently built a financial safety net are now uncertain about the implications of these adjustments on their savings strategies,” he states. “It’s crucial to take the time to reassess and clarify one’s financial situation.”
He reassures savers that they do not have to navigate this landscape alone. Skipton Building Society offers expert financial advice tailored to individual needs, accessible to all, not just members. The forthcoming changes to the Cash ISA landscape may pose challenges, but with informed strategies and professional guidance, savers can still protect and grow their finances effectively.
