Savings & ISAs 5 min read • 29 October 2026

If you were worried about the proposed cut to the Cash ISA allowance, there's welcome clarity from Budget 2026. On 28 October 2026, Chancellor John Healey confirmed that the government would abandon plans to reduce the annual Cash ISA limit from £20,000 to £12,000 for most adults from April 2027. Instead, the full £20,000 allowance will remain available for cash savings, regardless of your age — and the overall ISA allowance is also unchanged.

For savers who prefer the security of cash — particularly those building an emergency fund, saving for a house deposit, or keeping money available for the short term — this removes a restriction that had been due to arrive in just a few months.

What was supposed to change?

At Budget 2025, the government announced plans to limit the amount most adults could pay into Cash ISAs to £12,000 per tax year from 6 April 2027. The overall annual ISA allowance would have stayed at £20,000, meaning savers wanting to use the full allowance would generally have needed to put at least £8,000 into another type of ISA, such as a Stocks and Shares ISA. The proposed restriction would not have applied in the same way to savers aged 65 and over.

The aim was to encourage more people to invest rather than hold all their ISA savings in cash. But cash savings and investments serve different purposes, and not everyone wants to take on investment risk. Budget 2026 reverses that proposed restriction before it comes into force.

What are the Cash ISA rules now?

The rules are straightforward:

• You can continue paying up to £20,000 into a Cash ISA each tax year, subject to the overall ISA allowance.
• You can split your allowance between Cash ISAs and Stocks and Shares ISAs.
• Interest earned inside a Cash ISA remains free from UK income tax.
• The £20,000 limit applies to new subscriptions during the tax year, not to the total balance you can hold.
• Unused ISA allowance normally cannot be carried forward to the next tax year.

The government has confirmed that the £20,000 Cash ISA limit will remain in place. Secondary legislation implementing the Budget decision is expected to be laid before Parliament in November 2026.

What does this mean in pounds and pence?

The reversal doesn't give savers an extra £8,000 allowance compared with the rules in force today. Instead, it preserves the option to put the entire £20,000 annual allowance into cash. For someone planning to save more than £12,000 a year, that flexibility can be valuable.

For example, £20,000 earning 4% for a full year would generate £800 in interest. Under the abandoned proposal, only £12,000 of new contributions could have gone into cash within an ISA, with the remaining £8,000 needing another home. That doesn't automatically mean you would have paid tax on the interest from the other £8,000 — whether tax is due outside an ISA depends on your other savings income and tax circumstances.

Does everyone need a Cash ISA?

Not necessarily. A Cash ISA can be useful, but a good savings decision involves more than the tax treatment. Most people also have a Personal Savings Allowance, which allows a certain amount of savings interest to be earned outside ISAs without income tax. Under the usual rules, basic-rate taxpayers have a £1,000 allowance, higher-rate taxpayers £500, and additional-rate taxpayers none. Some savers can also benefit from the starting rate for savings.

That means a competitive ordinary savings account could still be a sensible choice, particularly if you aren't likely to pay tax on the interest. It's worth comparing the actual interest rates, withdrawal conditions and account protections rather than assuming an ISA is always better. The Savings Finder compares current rates across both.

Cash ISA or Stocks and Shares ISA?

The Budget reversal preserves choice between the two. It doesn't mean one is automatically preferable.

Cash can lose purchasing power when inflation exceeds the interest earned. Investments offer the potential for higher long-term returns, but losses are possible, including when you need to withdraw your money.

The government has also announced that it will work with the investment industry on a possible new incentive for first-time Stocks and Shares ISA investors. The details have not yet been finalised, so there is no new incentive to claim today.

What should you do now?

For most savers, there is no immediate action required because of the reversal. If you already have a Cash ISA, you can continue using it within the normal annual allowance — you don't need to move your savings into investments because of the previously proposed £12,000 cap.

If you're considering opening a new account, focus on the interest rate, whether you need instant access, any withdrawal penalties and whether your savings are covered by the relevant deposit protection arrangements. And if you're thinking of transferring an existing ISA, use the provider's official ISA transfer process — withdrawing the money yourself and paying it into a new account can affect your tax-free status or use up part of your annual allowance.

Frequently asked questions

The bottom line

The Cash ISA reversal is about keeping your options open. Savers who want to hold their full £20,000 annual ISA allowance in cash will continue to be able to do so. Those who prefer investing can still use a Stocks and Shares ISA, or combine both approaches.

The important question isn't whether cash or investing is better for everyone — it's which approach fits your goals, your timescale and the level of risk you're comfortable taking. For now, the practical message is simple: the proposed £12,000 Cash ISA cap is cancelled, and the £20,000 annual allowance stays.

Sources: HM Treasury, Budget 2026 (28 October 2026); HMRC, Budget 2026 Overview of Tax Legislation and Rates, Measure 2.5; HM Treasury/HMRC, Reduction in the Cash ISA limit (original Budget 2025 policy paper).

This article provides general information, not personalised financial advice. Tax rules and account terms can change.