Savings alert: Tomorrow 'last chance' for ISA holders as £20,000 tax-free allowance to be slashed

Analysts have issued a savings warning ahead of the financial year's end as ISA holders will have a "last chance" to take advantage of their full tax-free allowance, before it is slashed.

From April 6, adults can once again deposit up to £20,000 into their ISA, protecting their money from tax, but this tax year will be the final one in which younger savers can place their entire allowance into cash.

Catherine Wray, head of saving at Leeds Building Society, said: "This will be the last year that tax-free limit on cash ISAs will remain at £20,000 for all."

The changes, designed to push more Britons towards investment products, will fundamentally alter how millions approach their savings strategy.

From April 2027, those aged under 65 will see their cash ISA limit slashed to £12,000, while the overall annual allowance remains at £20,000.

The remaining £8,000 could be directed towards stocks and shares ISAs instead. Savers who have reached 65 will be unaffected, keeping their full £20,000 cash ISA entitlement.

Ms Wray added: "Next April it reduces to £12,000 unless you are over 65, in which case there is no change."

She explained the Government's rationale: "The aim is to encourage people to invest by providing a higher tax-free wrapper on other ISAs such as stocks and shares, but cash saving remains very important."

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Despite this policy shift, Wray emphasised that cash ISAs remain essential for building financial resilience and achieving savings goals, particularly given global economic uncertainty.

Michelle Holgate, director and wealth manager at RBC Brewin Dolphin, said the 40 per cent reduction in the annual cash ISA limit for under-65s in 2027 "represents a potentially momentous shift in the UK savings and investment landscape, yet our recent survey shows that 50 per cent of savers are not aware of this change".

Half of all savers have no idea their cash Isa allowance is about to be cut substantially. Ms Holgate cautioned that moving money into stock market investments requires careful consideration of individual circumstances.

She added: "Understanding one's emotional and financial ability to withstand these fluctuations is key to selecting the right approach."

Basic rate taxpayers can earn up to £1,000 in savings interest tax-free annually, while higher rate taxpayers receive just £500. ****Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said PSA levels have "not moved along with the times".

With interest rates significantly higher than when the allowance launched, more savers now find themselves liable for tax on their returns.

Alice Haine, a personal finance analyst at Bestinvest by Evelyn Partners, said that while the PSA "was adequate when interest rates were at record lows, high interest rates in recent years, combined with frozen income tax thresholds, mean more people are finding themselves liable for tax on savings interest as salaries rise and individuals move into higher tax brackets."

Ms Haine noted that while cash Isas suit those needing access to funds within five years, stocks and shares Isas may better serve long-term savers seeking returns that outpace inflation.

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