Since taking office, the Labour government has consistently expressed a desire to encourage more investment in the UK.
The chancellor recently announced that seven of the UK’s largest pension providers had signed the Mansion House Accord, pledging to invest at least 10% of their funds in private markets by 2030. Half of that investment will be earmarked for UK markets.
Now, the government are reportedly looking at ISAs and exploring ways to boost retail investment. One way they could achieve this is by changing the amount you can hold in a Cash ISA.
While there are no concrete plans in place, the chancellor could announce changes of some kind to the Cash ISA in the near future. If she does, the new rules may influence your financial plan.
Read on to learn how proposed changes to the Cash ISA could affect you.
You can currently contribute up to £20,000 across all your ISAs
ISAs are a useful tool for saving and investing because they offer significant tax benefits.
For example, you won’t pay Income Tax on interest you generate from savings in a Cash ISA. Also, there is no Capital Gains Tax (CGT) or Dividend Tax to pay on investment returns from a Stocks and Shares ISA.
You won’t pay any tax when withdrawing the funds from an ISA either.
Under the current rules for 2025/26, you can contribute up to £20,000 across all your adult ISAs. This includes a:
- Cash ISA
- Stocks and Shares ISA
- Lifetime ISA
- Innovative Finance ISA.
You can spread your £20,000 allowance between the different ISAs in any way you choose. For instance, you might decide to save £10,000 in a Cash ISA and invest the other £10,000 in a Stocks and Shares ISA.
Alternatively, you could save the full £20,000 in a Cash ISA.
After changes introduced in April 2024, you can now open and contribute to as many different ISAs as you like each tax year.
So, you currently have complete freedom to use your £20,000 ISA allowance however you choose.
Yet, recent reports suggest that the government could change this in the near future.
Rumours suggest the government could reduce the Cash ISA allowance to £4,000
The government has come under pressure to find ways to encourage UK savers to invest more of their wealth. The hope is that this will generate better returns for savers while also boosting the economy, if investors buy UK shares.
As a result, the chancellor is launching a review of the ISA landscape in July. According to This is Money, rumours suggest the government could inspire more investment by cutting the Cash ISA allowance to £4,000 a year.
Although we don’t know precisely how the new rules would work, the chancellor previously committed to maintaining the overall £20,000 ISA allowance.
This could mean that you’re able to contribute up to £4,000 to a Cash ISA and use the remaining £16,000 of your allowance to pay into other types of ISAs.
If these changes do come into effect, you might need to consider alternative ways to hold your wealth.
You could pay Income Tax on interest you generate from wealth in a regular savings account
You may want to save more than £4,000 each year, so if the government reduces the Cash ISA allowance, you may need to consider alternative ways to hold your wealth.
While you could use a regular savings account, you might pay Income Tax on any interest that exceeds your Personal Savings Allowance (PSA).
In 2025/26, the PSA is:
- £1,000 if you’re a basic-rate taxpayer
- £500 if you’re a higher-rate taxpayer
- £0 if you’re an additional-rate taxpayer.
As such, a regular savings account may not be the most tax-efficient option and you may want to explore some of these alternatives.
3 options to consider if the government reduces the Cash ISA allowance
1. Contribute to a Junior ISA
You can open a Junior ISA (JISA) on behalf of a child. You could open a Junior Cash ISA or a Junior Stocks and Shares ISA, and they offer the same tax benefits as adult ISAs.
Crucially, you can pay in up to £9,000 a year for each child, and this is separate from your adult ISA allowance. The child can then manage the account when they’re 16 and at 18, it transfers to an adult ISA in their name.
So, if you used your limited Cash ISA allowance and wanted to continue saving, you could make tax-efficient contributions to a JISA and build wealth for your child or grandchild.
2. Purchase Premium Bonds
Premium Bonds are another useful option if you’re looking for a tax-efficient way to hold your cash savings.
For every £1 you invest in Premium Bonds, you receive one entry into a monthly prize draw, provided you hold at least £25 worth of bonds. You can purchase up to £50,000 worth of Premium Bonds.
Each month, winners are selected at random and receive prizes ranging from £25 all the way up to £1 million. All prizes are completely tax-free.
Premium Bonds could be a useful option for holding cash because you can easily access your savings at any time. You might also generate tax-efficient growth if you win prizes.
That said, it’s important to remember you could win very small prizes, or nothing at all, in many months. So, if you want to generate reliable growth each month, Premium Bonds might not be a suitable option for you.
3. Invest more of your wealth
It’s important to hold some cash savings as an emergency fund, and you may want to save for short- to medium-term goals such as a holiday, a new car, or home renovations.
In some cases, saving £4,000 a year in a Cash ISA might not be enough for you to reach your goals.
However, if you already have a healthy savings account, the proposed Cash ISA limit might be adequate for you. It’s worth considering this because holding too much wealth in cash could mean you miss out on potential growth.
Indeed, if you invest your wealth instead, you may see higher returns.
For example, Moneyfacts reports that the average interest rate on a Cash ISA between February 2024 and February 2025 was 3.8%.
In that same period, the average return on a Stocks and Shares ISA was 11.86%.
As such, limiting the amount you put in your Cash ISA and investing more of your wealth could benefit you in the long term.
Get in touch
If you’re concerned about potential changes to the ISA landscape, we can advise you on the most suitable ways to hold your wealth.
Please get in touch to find out how our team of VouchedFor Top Rated planners could help today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate NS&I products.