Credit: Lauren Hurley / No 10 Downing Street
Chancellor John Healey has scrapped former chancellor Rachel Reeves' plan to lower the Cash ISA tax-free allowance from £20,000 to £12,000.
In his inaugural Budget today (28 October), Healey reversed his predecessor's decision to lower the Cash ISA tax-free annual allowance, keeping the limit at £20,000 "for all ages".
The reversal was first touted by the Financial Times on Tuesday (27 October), which also mentioned proposed anti-circumvention measures dropped, including restrictions on transfers from Stocks and Shares ISAs to Cash ISAs and a 22% charge on interest earned on cash and cash-like investments held within Stocks and Shares ISAs.
Healey added he would work with the financial sector on a new "Starter ISA" to help make investment "more accessible to reward" first-time investors.
In addition, he revealed that Lifetime ISAs are set to be replaced by "First Time Buyer ISAs", with the LISA penalty dealt with from today and "if the home you want costs more than the limit, you will get back at least what you put in".
In her Autumn Budget in 2025, former chancellor Rachel Reeves unveiled plans to slash the Cash ISA annual allowance from £20,000 to £12,000, a change that had been widely touted during the build-up to the day.
According to the plans, from April 2027, £8,000 of the allowance would have been "reserved exclusively for investment", Reeves told members of parliament (MPs). Those aged over 65 were set to retain the full Cash ISA allowance.
Holly Mackay, CEO of Boring Money, welcomed the move today, saying: "Fear of loss is the main deterrent to investing and we will not fix this by restricting access to cash. It will be hugely beneficial to the nation's overall financial health if we can get more people comfortable with investing, not just sitting in cash, but this has to be a carrot approach, not a stick."
Isabella Galliers-Pratt, senior investment director at Rathbones, deemed it "a victory for common sense".
"Cash and investing should not be pitted against each other because both can play an important role in a financial plan," she added.
Kevin Brown, savings specialist at Scottish Friendly, added: "By reversing plans this afternoon, the government will have to answer the lingering question of how it will now deliver the investing culture it wants to create.
"We now hope the government will explain how it will help give people the confidence to consider investing. Keeping the allowance unchanged does little on its own to address the barriers that prevent people from taking that first step."
