What’s happening to your ISA allowance?
- Michael Hill
- Dec 3
- 3 min read
In the UK Budget, the Chancellor announced changes to ISA allowances that’ll take effect from April 2027.
If you’re over 65: your ISA allowance will remain the same.
If you’re under 65: your total allowance will remain the same (£20,000 in the current tax year) but only £12,000 of that can be in a Cash ISA. The remaining £8,000 allowance must be invested in a Stocks and Shares ISA.
What is an ISA?
An ISA (Individual Savings Account) is a UK savings or investment account designed to help people grow their money without paying tax on the interest, dividends, or capital gains earned inside it.
It may seem an unimportant distinction – an ISA is an ISA isn’t it? Yet Stocks and Shares ISAs have historically outperformed Cash ISAs by quite a margin.
Between February 2024 and February 2025, Moneyfactscompare.co.uk reported that the average Stocks and Shares ISA delivered returns of nearly 12%, far outpacing the 3.8% achieved by Cash ISAs.*
And the Barclays Equity Gilt Study, which has tracked market performance since 1899, further underscores the point - showing that over any given 10‑year period, UK equities have more than a 90% likelihood of outperforming cash.**
While Cash ISAs provide security and guaranteed interest, they are vulnerable to inflation. Over long periods, the real value of cash savings often erodes.
By contrast, Stocks and Shares ISAs invest in equities, bonds, and funds, which historically deliver higher returns. While markets fluctuate, equities have consistently outperformed cash savings over decades, as you can see in the graph below.
What does this mean for you?
Let’s recap the basics:
A Cash ISA does not invest your money, but you earn tax-free interest on your savings. This is a great option if you prefer a very low-risk investment, or aren’t in a position to invest over the long term.
A Stocks and Shares ISA invests your money into shares, funds, bonds, and other investments. Long term growth is usually better, but markets fluctuate and you may get back less than you invested.
The changes the Government have made to your ISA allowances mean that risk‑averse savers under 65 will lose part of their tax‑free shelter for cash savings. Those unwilling to invest may face tax liabilities on interest earned outside ISAs. On the other hand, those who embrace Stocks and Shares ISAs could benefit from higher long‑term growth, though with greater short‑term volatility.
For older savers, the preservation of the full £20,000 Cash ISA allowance provides reassurance. They can continue to save tax‑free without investing in stocks and shares.
Important information
The views and opinions contained herein are those of Benchmark. They do not necessarily represent views expressed or reflected in other Benchmark communications, strategies or funds and are subject to change.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable, but Benchmark does not warrant its completeness or accuracy. The data has been sourced by Benchmark and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion.
Benchmark is not responsible for the accuracy of the information contained within linked sites. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past Performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.
Issued by Benchmark Capital Limited, Registered Office: Broadlands Business Campus, Langhurst Wood Road,
Horsham, West Sussex, England, RH12 4QP. Registered in England and Wales No 0940462
Comments