Autumn 2025 Budget: What ISA Changes Mean for Your Savings
The Autumn 2025 Budget announced significant changes to ISA allowances and savings tax rates, coming into effect from April 2027. Here's what the changes mean for Premium Bonds holders and UK savers — and how to adjust your strategy.
The Key Budget Changes
Rachel Reeves announced two major changes affecting savers in the Autumn 2025 Budget. While neither takes immediate effect, both will significantly impact how UK residents should structure their savings from April 2027 onwards.
1. Cash ISA Allowance Reduction
The most headline-grabbing change is the reduction of the Cash ISA allowance for savers under 65. From April 2027:
| Age Group | Current Cash ISA Limit | From April 2027 | Change |
|---|---|---|---|
| Under 65 | £20,000 | £12,000 | -£8,000 |
| 65 and over | £20,000 | £20,000 | No change |
Crucially, the total ISA allowance remains at £20,000. This means under-65s who want to use their full tax-free allowance must invest at least £8,000 in a Stocks & Shares ISA, Lifetime ISA, or Innovative Finance ISA.
💡 What This Means in Practice
If you're under 65 and currently max out your Cash ISA at £20,000, from April 2027 you'll only be able to put £12,000 into cash. To use the remaining £8,000 tax-free, you'll need to open a Stocks & Shares ISA or similar investment ISA.
2. Savings Tax Rate Increases
Less discussed but equally significant: savings income tax rates are increasing by 2 percentage points across all bands from April 2027:
| Tax Band | Current Rate | From April 2027 | Increase |
|---|---|---|---|
| Basic rate | 20% | 22% | +2% |
| Higher rate | 40% | 42% | +2% |
| Additional rate | 45% | 47% | +2% |
The Personal Savings Allowance (PSA) remains unchanged: £1,000 for basic rate taxpayers, £500 for higher rate taxpayers, and £0 for additional rate taxpayers. However, once you exceed your PSA, you'll pay more tax on savings interest.
Impact on Different Savers
Higher Rate Taxpayers: The Biggest Impact
If you're a higher rate taxpayer (earning £50,271–£125,140), these changes hit hardest:
- PSA already limited: You only get £500 tax-free interest
- Tax rate jumping to 42%: For every £100 of interest above your PSA, you'll keep just £58 (down from £60)
- If under 65: Cash ISA limit drops by £8,000
⚠️ Real-World Example
A higher rate taxpayer with £50,000 in a 5% savings account earns £2,500 interest. After using their £500 PSA:
- Current tax: £2,000 × 40% = £800
- From April 2027: £2,000 × 42% = £840
That's an extra £40 per year in tax — and compound that over multiple years with larger savings pots, the difference grows significantly.
Basic Rate Taxpayers: Moderate Impact
For basic rate taxpayers (earning £12,571–£50,270), the impact is smaller but still notable:
- PSA unchanged at £1,000: Most modest savers won't notice
- But if you exceed your PSA: Tax jumps from 20% to 22%
- Break-even point: Around £20,000 at 5% interest generates £1,000, your full PSA
If your total savings exceed roughly £20,000–£25,000 (depending on interest rates), you'll start paying the higher 22% rate on interest above your allowance.
Non-Taxpayers: Minimal Impact
If you're a non-taxpayer (income below £12,570), these changes have minimal direct impact. You don't pay savings tax regardless of rates. However, the Cash ISA limit change still affects under-65s if they want to preserve future tax-free status.
Why Premium Bonds Just Got More Attractive
Here's where things get interesting for Premium Bonds holders. With the current 3.6% prize rate, Premium Bonds already compete well with savings accounts for higher rate taxpayers. From April 2027, the case becomes even stronger.
The Tax-Free Advantage
| Product | Gross Rate | Tax Rate | Net Return (Current) | Net Return (April 2027) |
|---|---|---|---|---|
| Premium Bonds | 3.6% | 0% | 3.6% | 3.6% |
| Savings @ 5% | 5.0% | Basic (20%→22%) | 4.0% | 3.9% |
| Savings @ 5% | 5.0% | Higher (40%→42%) | 3.0% | 2.9% |
| Savings @ 5% | 5.0% | Additional (45%→47%) | 2.75% | 2.65% |
For higher and additional rate taxpayers, Premium Bonds already beat taxable savings accounts. From April 2027, the gap widens further. A higher rate taxpayer would need to find a savings account paying 6.2% to match Premium Bonds' 3.6% tax-free return (up from 6.0% currently).
✅ Premium Bonds Sweet Spot
Premium Bonds become especially attractive when:
- You're a higher or additional rate taxpayer
- You've used your ISA allowance
- You have savings beyond your Personal Savings Allowance
- You want flexible, instant-access savings
- You prefer government-backed security
Strategic Recommendations
For Under-65s: Prepare for the ISA Split
If you're under 65 and currently maximise your Cash ISA, start thinking now about how you'll use the remaining £8,000 from April 2027. The right choice depends heavily on your age, time horizon, and risk tolerance:
💡 S&S ISAs Aren't Just for Stock Market Risk
Many people assume Stocks & Shares ISAs mean investing in volatile equities. However, you can hold much lower-risk investments in a S&S ISA, including:
- UK Government Gilts: Government bonds with predictable returns, backed by HM Treasury (same as Premium Bonds)
- Money Market Funds: Very low-risk funds that invest in short-term cash equivalents, offering returns similar to savings accounts
- Bond Funds: Corporate and government bond funds with lower volatility than equities
- Multi-asset Funds: Conservative funds mixing cash, bonds, and limited equity exposure
These options can provide similar security to cash while using your full ISA allowance tax-efficiently.
Consider Your Circumstances:
- If you're younger (under 50) with a long time horizon: Many would argue the ISA allowance is too valuable to waste on cash savings. Even if you're risk-averse, consider using the £8,000 for gilts or money market funds in a S&S ISA rather than letting the allowance go unused.
- If you're approaching retirement or need the money within 5-10 years:Premium Bonds or lower-risk S&S ISA options (gilts/money market funds) may be more appropriate than equity investments.
- If you don't understand the stock market or are very risk-averse: You don't have to invest in stocks. Gilts and money market funds in a S&S ISA offer similar risk profiles to cash while preserving your tax-free allowance for the future.
- If you're completely uncomfortable with any investment wrapper: Premium Bonds offer a tax-free alternative for amounts beyond your £12,000 Cash ISA limit, though you'll lose the £8,000 of ISA allowance permanently each year.
For All Taxpayers: Review Your Savings Hierarchy
With higher savings tax rates coming, the optimal savings hierarchy becomes even more important. However, the "right" order varies significantly based on your age, risk tolerance, and time horizon:
📊 Savings Priority Framework (April 2027)
The order depends on your personal circumstances. Consider:
For Younger Savers (Under 40) with Long Time Horizons:
- Stocks & Shares ISA — Full £20,000 allowance (long-term growth potential; can use lower-risk options if preferred)
- Emergency Fund — Premium Bonds or easy access savings (3-6 months expenses)
- Pension contributions — Tax relief plus tax-free growth
- Additional savings — Premium Bonds or taxable accounts
For Mid-Career Savers (40-55) Balancing Growth and Security:
- Cash ISA — £12,000 (guaranteed, tax-free)
- S&S ISA — £8,000 (consider lower-risk options like gilts/bond funds if approaching retirement)
- Premium Bonds — Up to £50,000 (flexible, tax-free)
- Pension contributions — Maximise tax relief
For Pre-Retirement/Retirees (55+) Prioritising Security:
- Cash ISA — Up to limit (£12,000 under-65s, £20,000 over-65s)
- Premium Bonds — Up to £50,000 (capital security, tax-free)
- S&S ISA with low-risk holdings — Remaining allowance (gilts, bond funds, money market funds)
- Savings Account (within PSA) — Emergency access funds
Note: Some advisers would argue that for younger savers, the ISA allowance is too valuable to use on cash savings, even if you're risk-averse. Gilts and money market funds in a S&S ISA offer similar risk to cash while preserving the tax wrapper's long-term value.
For Higher Rate Taxpayers: Maximise Tax-Free Options
With 42% tax on savings interest from April 2027, you're effectively losing almost half your earnings to tax. Prioritise:
- Full ISA allowance: £20,000 completely tax-free
- Premium Bonds: Up to £50,000 in tax-free prizes
- Pension contributions: Tax relief plus tax-free growth
- VCTs/EIS: For higher risk tolerance (tax reliefs available)
Calculating Your Break-Even Rates
Use this formula to find the savings rate needed to match Premium Bonds after tax:
🧮 Break-Even Formula
Required Savings Rate = 3.6% ÷ (1 - Tax Rate)
- Basic rate (22%): 3.6% ÷ 0.78 = 4.62%
- Higher rate (42%): 3.6% ÷ 0.58 = 6.21%
- Additional rate (47%): 3.6% ÷ 0.53 = 6.79%
If you can't find a savings account paying above these rates, Premium Bonds win.
What About Cash ISA Rates?
Cash ISA rates (around 4-5%) do beat Premium Bonds' 3.6%, and for many savers, especially those approaching or in retirement, Cash ISAs are the right choice for guaranteed returns. However, the "optimal" strategy depends on your circumstances:
✅ Different Strategies for Different People
If you're older or risk-averse and need guaranteed income:
- Max out your Cash ISA first (guaranteed, tax-free, higher rate)
- Then use Premium Bonds for additional savings (tax-free, flexible)
- Only use taxable savings accounts as a last resort
If you're younger with a long investment horizon:
- Consider using your full £20,000 ISA allowance in a S&S ISA (maximise long-term tax-free growth)
- Use lower-risk S&S ISA options (gilts, money market funds) if you're uncomfortable with equities
- Keep an emergency fund in Premium Bonds or easy access savings
If you don't understand investing or find it stressful:
Cash ISAs and Premium Bonds are perfectly valid choices. However, be aware that gilts and money market funds held in a S&S ISA are similar in risk profile to cash, and preserving your ISA allowance may be valuable in the long run.
Our Portfolio Optimizer now includes April 2027 tax rates and the new ISA limits, helping you model the optimal allocation for your situation.
Timeline and Action Plan
| When | Action |
|---|---|
| Now | Review your current savings allocation |
| 2025/26 tax year | Max out ISA under current £20,000 Cash ISA rules |
| 2026/27 tax year | Last year of current rules — final chance at full £20,000 cash |
| April 2027 | New rules begin — £12,000 Cash ISA limit for under-65s |
| 2027/28 onwards | Adapt strategy to new ISA split and higher tax rates |
Key Takeaways
📌 Summary
- Cash ISA limits are being cut — Under-65s will only be able to save £12,000 in Cash ISAs from April 2027 (down from £20,000). Over-65s are unaffected.
- Savings tax rates are increasing — All bands go up by 2 percentage points (20%→22%, 40%→42%, 45%→47%).
- Premium Bonds become more attractive — The tax-free advantage widens as savings tax increases. Higher rate taxpayers would need 6.2% savings rates to match Premium Bonds' 3.6%.
- S&S ISAs become necessary for full allowance — Under-65s wanting to use their full £20,000 ISA allowance must invest at least £8,000 in investment ISAs. However, S&S ISAs can hold low-risk assets like gilts and money market funds, not just stocks.
- One size doesn't fit all — The "optimal" strategy varies by age, risk tolerance, and time horizon. Younger savers may benefit more from using their full ISA allowance (even in low-risk S&S holdings), while older savers may prefer guaranteed cash returns.
- Plan ahead — You have until April 2027 to adjust your strategy. Use the remaining time under current rules wisely.
Model Your Optimal Strategy
Our Portfolio Optimizer now includes April 2027 tax rates and ISA limits. See exactly how the changes affect your savings mix.
Frequently Asked Questions
Do these changes affect existing ISA savings?
No. Money already in ISAs remains tax-free indefinitely. The changes only affect how much you can contribute from April 2027 onwards.
What if I turn 65 after April 2027?
Once you turn 65, you'll qualify for the full £20,000 Cash ISA allowance in that tax year and onwards. The reduced £12,000 limit only applies while you're under 65.
Can I still transfer existing ISAs to Cash ISAs?
Yes. ISA transfers don't count towards your annual allowance. You can consolidate existing ISAs regardless of the new contribution limits.
Will Premium Bonds rates change too?
Premium Bonds rates are set by NS&I and can change at any time based on market conditions and government policy. The 3.6% rate is current as of November 2025, but may adjust before April 2027.
Should I move money from savings to Premium Bonds now?
It depends on your tax situation. Use our Comparison Tool to see whether Premium Bonds or your current savings account gives better after-tax returns at your tax rate.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Tax rules and savings rates can change. The budget changes discussed are based on announcements as of November 2025 and may be subject to amendment before implementation. Consider your personal circumstances and consult a financial advisor for personalized guidance.