UPDATE: |Martin Lewis issues warning to all savers with an ISA as major changes rumoured News

A change could come in the next tax year affecting people saving money in an ISA

Martin Lewis has warned people how to make the most of their saving accounts as the Chancellor has been debating reducing ISA allowances.

Financial journalist Martin Lewis, and founder of Money Saving Expert, has warned savers to “use your ISA allowance” sooner rather than later as it could soon be reduced.

Each tax year every UK adult has a £20,000 allowance to invest money into an ISA (Individual Savings Account) tax free. Although your £20k allowance can’t be carried over, it remains tax-free while in the ISA. So effectively if you have used your full allowance for five years, you could have £100k savings tax free.

But now, Martin Lewis has warned that the Chancellor has been evaluating cutting the cash ISA allowance, potentially as low as low as £4,000, which is likely to be announced in the Autumn Budget if it goes ahead.

Lewis explained: “The concept behind it is that it’d encourage people to put the money in shares ISAs instead (personally, I’m sceptical if it’d work – many will just keep saving but pay more tax). Of course, everything is pure supposition – I doubt any firm decision has been made yet.

“But if it happens as rumoured, it WOULDN’T impact money already in cash ISAs, it’d just cut what you can put in, in future. Whether it’d start immediately, or in January or April 2026, no one knows (including at this point, I suspect, Rachel Reeves). Yet if you plan to save in a cash ISA, all of this would suggest getting it in sooner would seem safer.”

So Lewis is recommending that people utilise their full £20k allowance as soon as possible, in case it gets lowered by the next tax year.

Explaining how an ISA works, Lewis uses an analogy. He says: “Picture a cake, let’s say a chocolate cake for cash savings (though it could equally be a strawberry cake for shares). Normally it’s just sitting there, so the tax collector can come and take a bite (of your interest).

“But think of an ISA wrapper like a protective piece of clingfilm you can wrap around some of the cake. Once your cash is inside, nothing changes – the cash in savings is still cash in savings (so a cash ISA is just a savings account), the only difference is… now the tax collector can’t eat any.”

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