Key changes to savings allowances are coming in soon (Image: Getty)
The Treasury has issued a statement about a key change to savings allowances coming in soon and how people will be affected. Several major changes are taking effect which will mean some savers will pay more tax.
As announced at the Autumn Budget 2025, the Government is making changes to the ISA allowances. ISAs offer a way to build up your savings entirely tax free, with no tax to pay on any interest earnings within a cash ISA, or on any investment growth from a stocks and shares ISA.
You can currently deposit up to £20,000 into ISAs, and split this allowance however you want between cash accounts or stocks and shares. From April 2027, this will be restricted so that you can only use up to £12,000 of the allowance as you see fit.
The remaining £8,000 will still be there but will only be available for deposits into investment-based accounts. But some people will be exempt from the new rules.
Anyone aged 65 and over will be exempt from the changes and will retain the current £20,000 allowance. A recent HMRC factsheet set out when exactly this will take effect.
‘Higher limit’
The information states: “Individuals aged 65 and over will benefit from a higher Cash ISA limit of £20,000, entitlement to which will apply from the start of the tax year in which an individual turns 65.”
This means anyone who was born before April 1963 will keep the current ISA allowance going forward, as they will have reached the age of 65 by at least some point during the next tax year, which runs from April 2027 to April 2028.
The reason for the exemption is to provide more leeway for older savers about how they divvy up their savings. But it is a curious choice, as it is out of step with other key dates that affect older people’s finances.
For example, there will soon be a two-year gap between this point and the state pension age. The access age for the DWP benefit is currently moving up in stages, from 66 to 67, between April 2026 and 2028.
Another different date for retirement planners is when the can start to draw down from their private pensions. This is currently once you turn 55, and this will be jumping up to 57 from April 2028, at the same time as when the state pension age reaches 67.
The state pension age is also set to move up again from 67 to 68, between April 2044 and 2046. There has been discussion of moving forward this timetable.
Treasury statement
Given these discrepancies, the Treasury was asked why 65 was chosen as the point where people get the full cash ISA allowance under the new rules. AnHM Treasury spokesperson said: “These reforms are designed to encourage more people to benefit from the better long-term returns that investing can offer while continuing to support savers.
“We introduced an age carve-out for those aged 65 and over in recognition that people approaching retirement may need greater flexibility in how they manage their savings.”
The department said these changes to the ISA rules come alongside new policies to improve the UK’s investing culture and ensure people get better returns from investing.
Tax increases coming in
Some more changes are coming in from April 2027. The tax rate you pay on your savings interest earnings will go up by two percentage points, across all tax bands.
This means the rates will go up by:
- For basic rate taxpayers – up from 20 per cent to 22 per cent
- For higher rate taxpayers – up from 40 per cent to 42 per cent
- For additional rate taxpayers – up from 45 per cent to 47 per cent.