6 major savings changes announced in the Budget – and what they mean for you

Millions of savers are set to be affected by a string of major changes announced in the autumn Budget. Chancellor John Healey delivered his first Budget on Wednesday, with ISAs, savings tax and help for first-time buyers among the areas facing changes. Some savers received good news after the Government abandoned plans to slash the amount people can put into a Cash ISA each year.

But people keeping large amounts of money in ordinary savings accounts could face a bigger tax bill from April 2027 as the tax charged on savings income rises. There are also major changes coming for first-time buyers, including a new ISA, while some people with Lifetime ISAs have received help immediately.

The Government is also exploring a new incentive to encourage first-time investors and has confirmed changes to Help to Save. Here are six of the big savings changes announced in the autumn Budget and what they could mean for your money.

1. Cash ISA allowance will stay at £20,000

One of the biggest announcements for savers was actually a decision not to go ahead with a change that had already been planned. The amount people can put into a Cash ISA will remain at £20,000 a year.

Under plans announced by former chancellor Rachel Reeves, the Cash ISA allowance for people under 65 was due to fall from £20,000 to £12,000 from April 2027. The idea was to encourage more people to move some of their money away from cash and into investments.

However, Mr Healey has now abandoned that change, meaning eligible adults will continue to be able to put as much as their full £20,000 annual ISA allowance into cash, regardless of their age.

The Chancellor told MPs: “I will not go ahead with the cut to the tax-free amount that people can put into a cash ISA. The limit will stay at £20,000 per year, tax-free, for people of all ages and to make investment more accessible, I will work with the sector to create a new Starter ISA to reward first-time investors.”

The decision is particularly important because interest earned inside a Cash ISA is free from income tax. It means savers who prefer cash will not face a £12,000 Cash ISA cap that would have left the remaining £8,000 of their annual ISA allowance available for other types of ISA.

Brian Byrnes, director of personal finance at Moneybox, welcomed the U-turn. He said: “By reversing the proposed cut to the Cash ISA limit, the Chancellor has made a decision that will reassure savers.

"We look forward to working alongside the Government and regulators to focus on what matters: financial education and accessible advice, to empower people to take the next positive step with their finances and start investing.”

Jennifer Crichton, associate planning director at Killik & Co, said: “The industry consensus was clear: restricting the Cash ISA allowance was unlikely to deliver the intended boost to investment and risked adding unnecessary complexity for savers. It is therefore welcome to see the Government reverse course, retain the full £20,000 Cash ISA allowance and focus instead on ways to educate and encourage people to invest.

“There will always be circumstances where holding more cash is the right choice, and retaining the full allowance gives individuals the freedom to make decisions that reflect their own needs and financial circumstances. Just as importantly, this reversal preserves the simplicity of the ISA framework, helping more savers to understand, engage with and make the most of both Cash and Stocks and Shares ISAs.”

Susan Allen, chief executive at Yorkshire Building Society, also welcomed the decision. She said: “We also welcome the decision to maintain the Cash ISA allowance at £20,000.

"Cash ISAs play an important role in helping millions of people build financial security through a simple, accessible and tax-efficient way to save. They remain hugely popular with savers, particularly those putting money aside for a first home or a rainy day. Maintaining the current allowance provides certainty and choice for consumers, while the savings held in Cash ISAs support the funding building societies use to help more people achieve homeownership.”

The overall annual ISA allowance is also staying at £20,000. Junior ISA and Child Trust Fund subscription limits will remain at £9,000 for 2027-28.

2. Tax on savings interest is going up

While the Cash ISA announcement will come as a relief to many savers, there was less welcome news for people earning taxable interest outside an ISA. From April 6, 2027, all three income tax rates applying to savings income will rise by another two percentage points. The basic savings rate will become 24%, while the higher rate will rise to 44% and the additional rate to 49%.

The rates will apply across the UK. This comes on top of a two-percentage-point increase announced in the previous Budget, meaning the rates from April 2027 will ultimately be four percentage points higher than they are now. However, this does not mean everyone with a normal savings account will suddenly have to hand 24% of their interest to HMRC.

Tax-free allowances will continue to protect many people. The Government says the Personal Savings Allowance and Starting Rate for Savings mean a basic-rate taxpayer would need more than £25,000 in savings outside an ISA, based on its assumptions, before they would start paying tax on their interest.

The Government estimates 84% of income taxpayers will be unaffected by the wider increase in tax on savings and property income. The Chancellor also said in his Budget speech that 88% of people would pay no more tax on their savings. For those who do have enough money outside tax-free accounts to face tax, however, the increase makes ISAs potentially more important.

Mike Stimpson, partner at wealth management firm Saltus, said: “This was a Budget that protected earnings but asked more of savings, property and business assets, which is exactly where many high net worth individuals hold their wealth. Many will be relieved that Capital Gains Tax rates and the tax-free pension lump sum were left alone, and that the cut to the cash ISA allowance has been reversed.

"But by April 2027, tax on savings and property income will have risen by four percentage points across two Budgets. Halving the lifetime limit on Business Asset Disposal Relief from £1million to £500,000 is a tax rise on business owners by another route, and will hit those with larger gains hardest.

"Inheritance Tax thresholds also remain frozen. For those who save and invest, it adds up to a further squeeze.”

Alex Pugh, chartered financial planner and partner at Saltus, said: “Raising tax on savings and property income for a second Budget in a row sends a mixed message to savers and landlords. On the one hand, the Government has kept the Cash ISA limit at £20,000 to encourage saving. On the other, it is taxing the returns on money people have already saved, often from income that has already been taxed.

“It lands on a group that already feels overtaxed, with 43% of high-net-worth individuals telling us they pay too much tax, and 56% were concerned about higher taxes on investment property. For many of our clients, savings and rental income are a key part of their retirement plans, so this isn’t a small change.

"Using ISA and pension allowances in full is now more important than ever, and anyone with significant savings interest or rental income should review how those assets are held before April 2027.”

Moneybox's Mr Byrnes added: “Savers are facing a double squeeze from frozen tax thresholds and higher tax rates on savings income. Saving is the foundation of financial resilience, and policy should reward rather than penalise the habit.

"Utilising tax-free wrappers like ISAs remains one of the best ways for households to protect their hard-earned money, and the upcoming changes to allowances shouldn’t deter people from making full use of them.”

The change does not increase tax on interest earned inside an ISA, where returns remain sheltered from income tax.

3. New ‘Starter ISA’ incentive for first-time investors

The Government still wants more people to consider investing rather than keeping all their long-term savings in cash. But instead of reducing the Cash ISA allowance, it now plans to explore offering people an incentive to start investing. The Chancellor described this in his speech as a new “Starter ISA”.

The Government says it will work with the investment industry to explore a new ISA incentive for people investing in a Stocks and Shares ISA for the first time. However, this is one area where savers need to be particularly careful about what has and has not been announced.

There is no final Starter ISA available to open yet. The Government has not confirmed exactly what the incentive will be worth, how it will work, or precisely who will qualify. Those details will be developed with the industry.

Ms Crichton said: “The detail of the proposed Starter ISA incentive is still to be shaped through engagement with the industry. Given that many first-time savers do not use their full £20,000 annual allowance, largely because of affordability constraints, a meaningful incentive is likely to be more effective than simply creating an additional allowance. A bonus-based approach, similar to the Lifetime ISA model, could be one way to encourage people to take their first steps from saving into investing.”

Rob Morgan, chief investment analyst at Charles Stanley Direct, said there remained a wider question over whether too much money was being kept in cash rather than invested for the longer term.

He said the abandoned Cash ISA reforms would have removed flexibility and made the ISA system more complicated for people whose circumstances or attitude towards investment risk changed. Investments can rise and fall in value, meaning money put into a Stocks and Shares ISA is not the same as cash held in a savings account.

4. Lifetime ISA penalty reduced for some first-time buyers

One change took effect the following day, on October 29. Lifetime ISA holders can save up to £4,000 each tax year and receive a 25% government bonus.

The accounts can be used towards a qualifying first home or later in life for retirement, subject to the scheme's rules. But one of the biggest complaints about LISAs has been the withdrawal charge.

A first-time buyer using their LISA towards a home costing more than the scheme's £450,000 property price cap previously faced the 25% withdrawal charge. From October 29, that charge has been reduced to 20% for someone buying a first home above £450,000 who otherwise meets the qualifying rules.

That difference is important. If someone contributes £4,000 and receives a £1,000 Government bonus, they have £5,000 before taking into account any interest or investment movements. A 25% withdrawal charge on £5,000 would remove £1,250, leaving £3,750. That means the saver loses the £1,000 bonus and £250 of their original £4,000 contribution.

A 20% charge on £5,000 would instead remove £1,000, leaving £4,000. The reduced charge is therefore designed to protect the value of the person's original contributions, assuming the account's value has not fallen. The charge also applies to interest or investment growth. The ordinary 25% charge will remain for other unauthorised LISA withdrawals.

The Chancellor told MPs: “So if the home you want costs more than the limit, you will get back at least what you put in.”

Mr Byrnes described the announcement as a “huge win” for LISA savers. He said: “Having long campaigned on behalf of the UK’s largest community of aspiring first-time buyers, today's announcement that the LISA’s withdrawal penalty will be reduced from 25% to 20% for those purchasing a property over £450,000 is a huge win for LISA savers, particularly those in London and the South-east where property prices are notoriously high.

“With a new first-time buyer ISA not expected until 2029 at the earliest, first-time buyers can continue to benefit from a product that provides a leading interest rate that competes with any regular Cash ISA on the market, without the risk of losing any of their hard-earned savings if their first home exceeds the current house price cap.”

There is another important point for existing LISA savers. The arrival of a replacement ISA does not mean their accounts will suddenly disappear.

People who already have a LISA will be allowed to continue contributing to and using it under the existing rules. People can also still open a Lifetime ISA before the new First-Time Buyer ISA replaces it for new savers in April 2029, provided they meet the eligibility rules.

5. New First-Time Buyer ISA coming in 2029

The Budget also confirmed more details of a completely new savings account designed specifically for people buying their first home. The First-Time Buyer ISA will launch in April 2029 and replace the Lifetime ISA for new savers. People will be able to contribute up to £4,000 each year, with those contributions counting towards their overall £20,000 annual ISA allowance.

There will be a 25% government bonus. However, the way the bonus works will differ from that of the existing Lifetime ISA.

Instead of bonuses being added to contributions as people save, the new ISA's bonus will be calculated on the account balance when money is withdrawn for a qualifying first-home purchase.

The maximum government bonus will be £20,000. The government bonus can be used towards a qualifying first home worth up to £450,000. There will also be no upper age limit. That is a major difference from the Lifetime ISA, which normally has to be opened before someone turns 40.

The new account will be focused solely on buying a first home, rather than combining home-buying and retirement saving as the LISA does.

Another important difference concerns people who ultimately decide not to use their money to buy a qualifying property. Because the bonus is only paid on a qualifying purchase, savers withdrawing their money for another reason would not receive it, rather than facing a LISA-style withdrawal charge.

Susan Allen, chief executive at Yorkshire Building Society, said: “The announcement of a new First-Time Buyer ISA is also welcome. Our research found that 31% of future homeowners don’t currently have enough saved for a deposit, so a dedicated savings product could help more people build up the deposit they need and take their first step onto the housing ladder.”

6. Help to Save is being reformed

A less eye-catching change in the Budget concerns Help to Save. The Government confirmed that a reformed version of the scheme will be introduced in spring 2028. Help to Save is aimed at eligible people on lower incomes and is designed to encourage them to build up savings.

Under the reforms, the scheme will move to a multi-provider model. That means banks, building societies and credit unions will be able to offer Help to Save accounts directly to eligible customers. The Government says this should mean the accounts are available from a wider range of savings providers, including some with an established presence on the high street.