How the New Savings Tax and ISA Rules Will Affect UK Savers from 2027

Introduction: What the Budget Means for Savers

The Chancellor’s latest Budget has delivered disappointing news for UK savers. From 6 April 2027, tax on savings income will increase, and the rules around cash ISAs will become more restrictive for many individuals. These changes could significantly affect how savers manage their money and plan for the future.

Understanding the new rules now can help you take proactive steps to protect your savings from higher tax bills.

How Savings Income Is Currently Taxed

The taxation of savings income is already complex, with several allowances and bands influencing how much tax you pay.

Personal Savings Allowance (PSA)

The personal savings allowance depends on your income tax band:

• Basic rate taxpayers: £1,000 allowance

• Higher rate taxpayers: £500 allowance

• Additional rate taxpayers: No allowance

Where applicable, the PSA sits on top of the personal allowance, allowing some interest to be earned tax-free.

The Savings Starting Rate Band

Another layer of relief is the savings starting rate band, which taxes savings income at 0% up to £5,000.

However, this band reduces by £1 for every £1 of non-savings income above the personal allowance. If your taxable non-savings income reaches £5,000 or more, you lose this benefit entirely.

Current Tax Rates on Savings

Any savings income not covered by the personal allowance, PSA, or starting rate band is taxed at standard income tax rates:

• 20% for basic rate taxpayers

• 40% for higher rate taxpayers

• 45% for additional rate taxpayers

What Changes from 6 April 2027

From the 2027/28 tax year, savings income will be taxed at new savings-specific tax rates, set two percentage points higher than current income tax rates:

• 22% for basic rate taxpayers

• 42% for higher rate taxpayers

• 47% for additional rate taxpayers

This means savers could see a noticeable increase in their tax liability on interest earned.

Changes to Income Tax Ordering Rules

The government is also changing how allowances are applied. From April 2027, the personal allowance will be set first against:

• Employment income

• Trading income

• Pension income

This shift means savings and property income—now taxed at higher rates—will no longer benefit from early allocation of allowances, potentially increasing overall tax bills.

Cash ISA Rules: What Savers Need to Know

Cash ISAs remain a powerful way to earn interest tax-free, especially with higher savings tax rates on the horizon.

Reduced Cash ISA Allowance for Under 65s

From 6 April 2027:

• The overall ISA allowance stays at £20,000

• Savers under 65 can put only £12,000 into a cash ISA

• At least £8,000 must be invested in a stocks and shares ISA

Exception for Over 65s

Savers aged 65 and over can continue to invest the full £20,000 into a cash ISA.

Importantly, existing ISAs are not affected by these changes.

Final Thoughts: Plan Early to Protect Your Savings

With higher savings tax rates and tighter cash ISA limits approaching, forward planning is more important than ever. Reviewing your savings strategy now could help minimise tax and make the most of available allowances before the new rules take effect.

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