In the 2025 Budget statement at the end of November, the chancellor announced changes to Cash ISA limits.
While the new rules will not take effect until April 2027, they may well influence your financial planning if you already have an ISA, or you are looking to start saving and investing in the near future.
Here, you can read how ISAs work, and why they might form a key part of your future planning.
You can also discover why the changes announced highlight the importance of differentiating between cash savings and money you invest.
ISAs are a highly tax-efficient way to save and invest
Because you do not pay Capital Gains Tax (CGT), Dividend Tax, or Income Tax on wealth in your ISA accounts, they are a highly tax-efficient way to save and invest your money.
As of 2025/26, you can contribute £20,000 across your ISAs, including Cash ISAs and Stocks and Shares ISAs, each tax year. You divide this allowance how you like, so you might save it all in a Cash ISA, invest the full amount in a Stocks and Shares ISA, or split it between the two.
Also, the £20,000 a year allowance applies to each individual, so you and a partner can save and invest £40,000 in ISAs between you.
However, from April 2027 you will only be able to pay a maximum of £12,000 into a Cash ISA, with the remaining £8,000 reserved for a Stocks and Shares ISA if you are under the age of 65.
This could make it more difficult to build cash savings tax-efficiently, as the interest you earn on non-ISA savings may be subject to Income Tax.
Other Budget changes could result in higher taxes on your savings and investments
In her Budget statement, the chancellor also announced the basic- and higher-rate tax on dividends will increase by two percentage points to 10.75% and 35.75%, respectively.
The tax on income from savings will also go up from April 2027, with all rates also increasing by two percentage points:
- Basic rate: 22% (previously 20%)
- Higher rate: 42% (previously 40%)
- Additional rate: 47% (previously 45%)
These changes highlight the importance of carefully planning your savings and investment strategy to ensure you minimise the amount of tax you are liable for and make the most of tax-efficient options.
Having an emergency fund in place should be your top financial priority
Before you start looking at any long-term savings and investment plans, your top priority should be to ensure you have enough money set aside in case of emergencies.
This will remove the need to rely on expensive borrowing if you require an immediate sum of money, and give you valuable peace of mind that the savings are there if you need them.
As a rule of thumb, your emergency fund should be large enough to cover your expenses for three to six months, and you may want to keep it in an instant-access savings account.
Once your emergency fund is in place, you can then start considering other saving and investment options.
The choice between saving and investment will be dependent on your time frame
The nature of stock markets means that the value of shares will rise and fall. There is also the potential for adverse economic conditions causing market upheaval that could see share values fall dramatically.
However, in the long term, you may see a far better return from investing than from an interest-bearing savings account. So, you may want to consider investing more of your wealth and holding less cash, especially as your Cash ISA limit will fall from April 2027.
We would normally suggest that you invest for a minimum of five years, which is usually a long enough period to ride out the effects of any short-term market decline.
4 simple investment tips to help you grow your wealth
While there is clearly an element of risk associated with investing, you can help mitigate this by following four simple rules:
1. Always see investing as a long-term undertaking
As you have read, you should look to invest for at least five years. If you believe you will need to access your money within this period, then you may want to use a savings account instead.
Even if you do not have a specific goal, investing can help build your wealth to provide greater financial security.
2. Diversify your investments across different sectors
By not putting all your eggs in one basket, you can help to mitigate the risk of a market downturn in one sector having a disproportionate effect on the value of your portfolio.
While not eradicating the risk completely, diversifying across different sectors and geographic regions can reduce the chances of you losing money.
3. Look to invest on a regular basis
Consistently investing a fixed amount of money at regular intervals will enable you to benefit from pound-cost averaging. This is a process whereby you purchase investment units at different prices, taking advantage of the movement of share values.
So, when share values fall, you are able to buy more of them and then benefit when values increase.
4. Reinvest your dividends
Dividends are a bonus declared by companies, usually on an annual basis, based on the number of shares you hold.
By reinvesting your dividend payments, you can use income earned from your investments to purchase more shares, instead of investing additional capital. These shares will then generate more dividends.
Make the most of your ISA allowance
Whether you are using a Cash or Stocks and Shares ISA, it makes financial sense to maximise your allowance as far as possible.
The tax benefits make ISAs a highly efficient way to save and invest, and the choice of options provides you with valuable flexibility when it comes to your wider financial strategy.
Get in touch
If you would like to talk about any of the issues you have read about in this article, or your own investment strategy, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.