Chancellor John Healey has reversed plans to cut the annual ISA allowance from £20,000 to £12,000 in a potential boost for savers.
In his budget, he announced: "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."
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, says: “Savers will be delighted to see the Cash ISA allowance U-turn by the Government, removing one of many complexities that were due to come into force in April.
"As warned when the changes were officially announced last year, this was a disappointing decision that added an extra layer of confusion.
"The time and cost that providers would have spent to get their systems ready for the changes is such a waste, and it triggered hordes of savers to plough billions of pounds into Cash ISAs."
The proposed cut, which would apply to savers aged under 65, was due to come into force in April 2027.
Individual Savings Accounts (ISAs) allow people to save or invest without paying tax on interest, dividends or capital gains within the account.
The annual ISA allowance currently stands at £20,000, meaning eligible savers can put up to that amount into ISAs each tax year without paying tax on the returns.
How much money is being saved in ISAs?
ISAs remain one of the UK's most popular savings products, with HM Revenue and Customs figures showing that around £135.7billion was paid into adult ISAs in the 2024/25 tax year.
That was an annual increase of £32.7billion, with much of the growth coming from cash ISAs.
Cash ISA subscriptions rose by 37.5%, an increase of £26.1billion, while subscriptions to stocks and shares ISAs increased by 19.7%, or £6.1billion.
Lifetime ISA subscriptions also rose, increasing by 20.1%, equivalent to £472million.
The figures suggest that cash ISAs accounted for much of the growth in ISA subscriptions, despite government efforts to encourage more people to invest.
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Why has the ISA decision changed?
It's a boost for savers who want to retain the flexibility to put up to £20,000 a year into tax-free accounts.
It could also be welcomed by banks and building societies, which rely on savings deposits to help fund lending to households and businesses.
Andrew Wright, Head of Savings at Paragon Bank, adds: “Cash and stocks and shares ISAs both have an important role to play, but they meet different needs. Retaining the full allowance reinforces the important role cash ISAs play and gives savers greater choice over how they protect and grow their money.”
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