‘i Used £50k Cash Isa To Buy My First Home, Cuts Will Stop Others Doing The Same’

Jenny Keen bought her home in Essex 18 months ago using more than £50,000 in savings stashed away in cash ISAs.

Over the years, she has made the most of the £20,000 yearly allowance that allows savings to accrue interest without being subject to tax.

Keen, 47, is among Britons who face paying more tax on their savings due to the Chancellor’s Budget decision to cut the cash ISA allowance to £12,000.

From April 2027, £8,000 of the ISA allowance will be designated exclusively for investment, with an exemption for over-65s, who will retain the full £20,000 cash allowance.

The move is intended to encourage savers to move their money into stocks and shares ISAs, but experts have cast doubt on whether it will work.

Michael Summersgill, chief executive of investment platform AJ Bell, said there isn’t “even a shred of evidence to support the idea that this measure will encourage people to invest”.

Shaz Bishop, of wealth manager RBC Brewin Dolphin, said it “could be difficult to inspire some cash savers to invest in a stocks and shares ISA instead”.

Keen, a business analyst from Billericay, said she probably won’t end up using the extra allowance for investment and will just keep her additional savings in cash.

She is currently using her cash ISA as a rainy day fund to cover unexpected large expenses or a big-ticket item she may need in the future, such as a new car.

She said she believes the Chancellor is “penalising” people who are more “comfortable” saving in cash and do not want to take risks with their money by investing in stocks and shares.

While the cash ISA helped her save up for her home, she believes this will make it harder for others to do the same.

Keen will pay more on savings held outside ISAs too because the Government is increasing the tax rates on savings, property and dividend income by two percentage points.

Basic-rate taxpayers will pay 22 per cent and higher-rate taxpayers 42 per cent, while additional-rate taxpayers will pay 47 per cent.

Interest is paid on savings held outside ISAs that exceed the personal savings allowance, which is £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers.

Keen said she was pleased to hear about the carve-out for over-65s because it will help people like her father, who only wants to use the cash ISA.

“Whether it’s fair or not – it probably isn’t, if you want to treat everybody the same,” she said. “However, there are people who are trying to plan for retirement. There are many people now who are past retirement age, are still working, and they do need that ability to save.”

She said the combined measures in the Budget will leave her “worse off” at a time when inflation is still high.

Keen will also be affected by an extended freeze to income tax thresholds and the £2,000 cap on “salary sacrifice” schemes, which allow salary to be sacrificed into pensions without incurring national insurance (NI) payments.

She said she and others who work in finance put their bonuses into their pensions using salary sacrifice schemes “because otherwise we’re taxed so much” on them.

As a landlord, she will be affected by the tax rise on rental income.

“You feel like you’re getting penalised for everything you’re doing, when actually we’ve worked really hard to get where we are and earn what we do,” she said. “We do keep the economy going. You need people spending money and earning decent salaries.”

Jeremy Cox, head of strategy at Coventry Building Society, said savers face a “triple whammy” of cuts to the cash ISA allowance, increased income tax on savings and the freeze to income tax thresholds.

“Almost 2p in every £1 of income tax is already being paid by savers outside Cash ISAs, and that figure is now only likely to rise,” he said. “This is bad news for anyone looking to save for their future and build financial resilience.”