Understanding the Government's ISA Reforms - What This Means for Your Cash ISA

This is a financial promotion and is intended to provide information, not investment advice.

For more than 25 years, UK taxpayers have been saving their money in Cash ISAs, benefitting from steady returns which are completely protected from taxation. Over the decades, the annual ISA allowance has gradually increased, and currently sits at £20,000. This means that every UK taxpayer can add up to £20,000 per year into an ISA account of their choice – this could be a Cash ISA, a Stocks and Shares ISA, or an Innovative Finance ISA (IFISA).

However, the Cash ISA has always been by far the most popular. According to provisional HMRC statistics, during the financial year 2022-2023, more than 7.8m Cash ISA accounts were active. This compares with approximately 3.8m Stocks and Shares ISA accounts, and 17,000 IFISA subscriptions.

In the run up to the Spring Statement, there were rumours that Chancellor Rachel Reeves planned to cut the £20,000 annual ISA allowance and reform the Cash ISA, sparking panic amongst savers and investors and prompting a flurry of ISA allocations. As a result, more than £4.2bn was deposited in Cash ISAs in March 2025 - a 31 per cent year on year increase[1].

What is happening with ISAs and why?

Despite the rumours, in her Spring Statement on 26th March, Reeves confirmed that there would be no cut to the £20,000 allowance – at least not this year. However, she has continued to hint at ISA reform with the aim of encouraging UK taxpayers to invest rather than save.

“The government is looking at options for reforms to Individual Savings Accounts that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission,” wrote the government in an official document accompanying the Spring Statement.

“Alongside this, the government is working closely with the Financial Conduct Authority to deliver a system of targeted support to give people the confidence to invest.”[2]

In July, the government is expected to launch a consultation into ISA reform, in a bid to meet its aim of encouraging more people to invest rather than save. This could result in policies being mooted which make the Cash ISA less appealing. For instance, the annual allowance may be reduced or capped; and incentives may be put in place to encourage more people to invest instead.

How do Cash ISAs work 

A Cash ISA is a tax-free savings account available only to UK residents, usually offered by banks, building societies and investment platforms.

There are different types of Cash ISA, including easy-access, fixed-rate, and flexible ISAs. With flexible ISAs, you can withdraw and replace money within the same tax year without affecting your allowance. Transfers between ISAs are allowed, but some rules may apply.

The returns offered by the best Cash ISA providers may be fixed for one, two, three or five years, and will roughly align with the Bank of England’s base rate, which means that returns err towards the lower end of the scale. However, Cash ISAs are generally considered to be among the lowest risk investment options, as – unlike some Stocks and Shares ISAs     and IFISAs – they are protected under the Financial Services Compensation Scheme (FSCS). 

Is your existing Cash ISA safe?

The government hasn’t given much away regarding its plans for ISA reform, but it is highly unlikely that any reformations will impact existing Cash ISA balances. Any changes to the ISA regime will most likely be implemented at the start of the next financial year on 6 April 2026, at the earliest. This gives savers and investors time to plan ahead and make the most of this year’s allowance.

What are your options?

Cash ISAs have been a staple of the savings landscape for a long time, but it is important to remember that there are other options for tax-efficient wealth management. For a start, there are other ISAs available.

Stocks and Shares ISAs offer liquidity and an abundance of choice. Stocks and shares portfolios can be adjusted to cater for all types of investors, from low to high risk. Lower risk portfolios may be highly diversified, with a weighting towards blue-chip companies which have stable earnings and strong dividends, as well as allocations towards defensive sectors such as utilities and healthcare, which tend to be less affected by economic cycles.

Higher-risk investors may choose to invest in high-growth companies or investment trends such as crypto currency funds, in their search of higher returns. Of course, the key risk when investing in any stocks and shares is that you will lose money due to market fluctuations. The chaos caused by President Trump’s recent tariff war showed that no listed company is immune to macro-economic volatility, and served as a reminder of the risk of investing vs saving.

The other option is the IFISA. This ISA is just eight years old, and has flown somewhat under the radar to date. The IFISA  allows UK taxpayers to invest in peer-to-peer or crowdfunding loans with tax-free returns. As of this year, the IFISA also covers open ended property funds and long-term asset funds.

Like Cash ISAs, IFISAs typically offer fixed returns. However, they are not FSCS protected and the key risk is that the borrower will not be able to repay the loan, potentially placing investor capital at risk.

Reputable IFISA managers work hard to offset this risk by carrying out stringent due diligence on any new loan, and taking some form of security as collateral which can be realised in the event of a default.

Discover easyMoney’s Innovative Finance ISA

easyMoney is one of the largest Innovative Finance ISA providers in the UK, with more than £90m invested. The easyMoney IFISA allows investors to fund property-backed bridging and development loans while targeting returns of between 5.4 per cent and 10       per cent per annum (conditional on status and size of investment). Thanks to the platform’s conservative lending policy and strict due diligence, no investor has ever lost a penny by investing in an easyMoney loan.

easyMoney also allows for the quick and easy transfer of ISA money, and offers a secondary market where investors can exit loans – including IFISA wrapped loans – within an average of 24 hours.

The platform recently announced that it has passed its £500m lending milestone, while paying more than £50m back to its investors in interest.

Capital is at risk. Past performance is no guarantee for future results.
Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.

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[1] https://www.thisismoney.co.uk/money/saving/article-14668225/Savers-race-stuff-4-2bn-cash-Isas-March-fears-tax-free-allowance-slashed.html

[2] https://assets.publishing.service.gov.uk/media/67e3ec2df356a2dc0e39b488/E03274109_HMT_Spring_Statement_Mar_25_Web_Accessible_.pdf