Most of the Budget attention in regards to saving was focused on cash ISAs – but another announcement could also dent your cash
Rachel Reeves finally confirmed big changes to cash ISAs following months of speculation – but this isn’t the only Budget announcement that could impact savers.
The rate of tax paid on savings interest is rising from April 2027. Basic-rate taxpayers can earn £1,000 in savings interest every year before they start to pay tax. This is known as your personal savings allowance.
The tax rate is 20% on savings interest above this amount – but this will increase to 22%. You pay tax on the savings interest you earn above this threshold.
If you were to save your money in the current top rate easy-access savings account, which is around 4.5%, you would need to have more than £22,000 put away for one year to be risk of breaching your savings allowance.
But the limit is much lower for higher-rate taxpayers, who pay 40% tax when they earn more than £500 in savings interest a year. This will go up to 42% from April 2027. Additional rate taxpayers have to pay 45% tax on all their savings interest. This will rise to 47%.
You don’t pay tax on any savings interest on money that is saved into an ISA. At the moment, you can save £20,000 every tax year across any ISA accounts you may have.
Some ISAs have lower limits – for example, you can only save £4,000 into a Lifetime ISA every tax year. But from April 2027, the Chancellor has announced that savers under the age of 65 will only be able to put £12,000 every tax year into a cash ISA.
There will still be an overall £20,000 ISA limit – so for example, you could save £12,000 into a cash ISA and £8,000 into a stocks and shares ISA.
Over-65s won’t be affected by the new cap, and will still be able to save up to £20,000 every tax year into a cash ISA as normal.
The main types of ISAs are cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs. Children have their own version called Junior ISAs.
Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “There’s a risk more people will be saving outside a tax-efficient environment and be exposed to this new tax rate.
“The personal savings allowance will still protect the first £1,000 of savings interest for basic rate taxpayers and £500 of interest for higher rate taxpayer, but after that people will face a hike in their tax bill.
“It’s going to be more important than ever to take advantage of cash ISAs, where all your savings are protected from tax. The change to the cash ISA allowance will not happen overnight so there is still an opportunity to take advantage of your allowance this year.”