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Chancellor Rachel Reeves has cut the annual cash Isa limit to £12,000 but will allow over-65s to keep the full £20,000 allowance, while launching initiatives to encourage people to invest in London-listed shares.
Reeves announced in her Budget on Wednesday that the move to reduce the annual tax-free cash limit, which was first revealed by the Financial Times, would take effect from April 2027.
The reduction is aimed at encouraging more savers to put their cash into investments, in an attempt to generate higher returns for individuals and potentially funnel more money into UK stocks.
The total annual limit for a combination of Isas remains at £20,000, which individuals can choose to put into a mix of products, or place the total amount into stocks and shares — with a cap of £12,000 on the cash Isa.
Richard Flint, chief executive of Hargreaves Lansdown, the UK’s biggest investment platform, told the FT: “To create a retail investing culture in Britain we need to break down the behavioural barriers. We will wait to see whether the cash Isa cut will have the intended impact of encouraging investing over saving.”
Cash is by far the most popular Isa product, housing some £360bn of savings.
But some investment sites raised concerns over balance transfers, which allow investors to move funds from their stocks-and-shares Isa to a cash product, without using their annual allowance.
“They should have clarified this,” one industry expert said. “If there isn’t a barrier put in place to prevent transfers, people will simply use stocks-and-shares Isas as a back door to access the higher allowance.”
Others added that there was little evidence that cutting the annual cash allowance would encourage people to invest.
Tom Selby, director of public policy at investment platform AJ Bell, said: “There is a real risk that the April 2027 deadline will drive more people to cash Isas in the short term after the chancellor created a ‘buy now while stocks last’ situation for savers and investors.”
Richard Wilson, chief executive of investment site Interactive Investor, said: “For some, saving in cash is essential, and it’s unproductive for the chancellor to blindly hope that this will direct them towards investing in the markets. Consumers don’t need more layers, they need simplicity. Give us one Isa.”
The Treasury also announced measures aimed at making UK shares more appealing. Investors currently pay 0.5 per cent stamp duty tax when they buy shares, but Reeves has waived this for new company listings for up to three years.
In addition, Reeves announced plans for investment platforms to create hubs championing UK investment opportunities in 2026, to which several companies have already signed up.
Hargreaves Lansdown said it “fully supports” the initiative, which will “help meet retail investor demand for the best of British,” noting that it was “a welcome boost for UK shares”.
The government also announced that it will replace the Lifetime Isa with a “simpler product” following a consultation starting in early 2026.
Brian Byrnes, head of personal finance at Moneybox, a savings and investment app, said he was “very disappointed to see . . . another Lifetime Isa consultation”.
He added the product had been a “lifeline” for first-time buyers and that the announcement would cause “uncertainty” for young savers.