How the Autumn Budget impacts your savings and ISAs

In Wednesday’s budget the Chancellor announced a range of measures that directly affect savers. Taxation rates on savings income, dividend income and property income are going up. At the same time, income tax thresholds, including the savings allowance are being frozen and cash ISA limits will be reduced for most savers.

These changes are designed to encourage more people to invest, rather than keep money in cash.

Changes to savings and dividend tax rates

From 2027, the rate of income tax applicable to savings will rise by two percentage points to 22% for basic rate taxpayers, 42% for the savings higher rate and 47% for the savings additional rate.

At the same time, savings allowances will stay the same. The starting rate for savings, which allows up to £5,000 of savings income tax-free for those with taxable income of less than £17,570, will remain at £5,000 until 2031.

Cash ISA limits to reduce

Cash ISA limits are also changing. From 2027, the annual limit for cash ISAs will fall to £12,000 within an overall limit of £20,000. Savers over the age of 65 will not be affected by this change and can still save the full £20,000 allowance in cash ISAs.

The government says this is to encourage younger savers to invest more and the Chancellor pointed to the growth that savers have missed out on by holding cash and not being invested into the market. On the one hand, this is a positive move – most younger savers would be better served by being invested in the market; however, not everyone has an appropriate risk appetite or time horizon to do this and it is easy to see how those who plan to buy a home in the next couple of years could be disadvantaged by this change.

Cash ISA and stocks and shares ISA limits were only equalised in 2014. For most of that time, cash interest rates have been at near historic lows and so saving within an ISA wrapper has been of limited benefit. Prior to 2014 savers could only save half, or less than half, of the overall ISA limit so this can be seen as a return to a previous philosophy rather than a whole new idea.

Lifetime ISAs to be abolished?

Lifetime ISAs and Junior ISAs will keep their current limits of £9,000 and £4,000 respectively until April 2031. However, a consultation will begin early next year on a new, simpler ISA product to support first time buyers and to replace the lifetime ISA.

What will be the effect of these changes?

The Office for Budget Responsibility expects the percentage of income saved by households (excluding pensions) to peak this year at 6.5% before falling to 2.25% in 2030. The government hopes that, by making saving less attractive, the excess will be invested or spent in the economy, thereby boosting growth.

What can you do?

Use the allowances that are available where it is possible to do so. The existing £20,000 cash ISA allowance remains until the end of the next tax year and over 65s are unaffected.

It will be possible to use the full £12,000 in a cash ISA and then the balance, £8,000, in a stocks and shares ISA.  For couples, this means £24,000 of tax-free cash savings each year.

For those under 40, £12,000 can be saved in a cash ISA, £4,000 in a lifetime ISA and £4,000 in a stocks and shares ISA.

Don’t forget the £1,000 personal savings allowance. The best paying instant access accounts are currently paying around 4.5%. Holding £22,000 in such an account would pay £990 in interest and, assuming it doesn’t make you a higher rate taxpayer, no tax is payable on that.

FSCS protection limit

While not announced in the budget it is worth noting that the Prudential Regulation Authority has announced an increase in the FSCS deposit limit. With effect from 1 December 2025 the limit will increase from £85,000 to £120,000 per individual per banking group.