Savers face a significant change from April 2027, with higher Income Tax rates applying to taxable savings income. At the same time, the Budget 2026 has changed course on an earlier plan to restrict the amount that many people could put into a cash Individual Savings Account (ISA), with the cash ISA limit now set to remain at £20,000. 

Together, these measures make the tax shelter offered by ISAs more valuable for people whose interest income exceeds their available tax-free allowances. 

What was the position before Budget 2026? 

For 2026/27, savings income above any available tax-free amounts is generally taxed at 20%, 40% or 45%, depending on the taxpayer’s income tax band. The starting rate for savings can give a 0% rate on up to £5,000 of savings income for people with sufficiently low other income. The Personal Savings Allowance (PSA) can also shelter up to £1,000 of interest for basic-rate taxpayers and £500 for higher-rate taxpayers; additional-rate taxpayers do not receive a PSA. 

Budget 2025 had already announced that, from 6 April 2027, savings income tax rates would increase by two percentage points to 22%, 42% and 47%. It also proposed reducing the annual cash ISA subscription limit to £12,000 for individuals under 65, within the overall £20,000 ISA limit. The reduced cash ISA limit was subsequently legislated in September 2026, together with supporting anti-circumvention rules. 

What has changed? 

The Budget 2026 goes further on savings tax with The Government introducing legislation in The Finance Bill 2026-27 to set savings income tax rates at 24%, 44% and 49% from 6 April 2027.  

Compared with the rates applying in 2026/27, this represents a four-percentage-point increase at each level.  It is also two percentage points above the rates originally announced at Budget 2025 for 2027/28. 

However, the starting rate for savings remains at 0%, with a £5,000 starting-rate limit. The Budget documents do not announce a change to the PSA. 

There is better news for cash ISA savers. Although the previous policy would have restricted annual cash ISA subscriptions to £12,000 for those under 65 from April 2027, the Budget 2026 now provides for the cash ISA limit to remain at £20,000 from 6 April 2027.  This is a material change from the earlier proposal and subsequent September regulations. Further legislative or regulatory steps will therefore be needed to give effect to the Budget decision before April 2027. 

Who will be affected? 

The higher savings rates matter principally to individuals with taxable interest after taking account of the starting rate for savings and PSA. This could include people holding substantial deposits outside ISAs, particularly as higher interest rates can mean allowances are used more quickly. 

For example, if a basic-rate taxpayer has £2,000 of taxable savings income after available allowances, tax at the 2026/27 savings basic rate of 20% would be £400. At the proposed 24% rate from April 2027, the equivalent liability would be £480 – an £80 increase, assuming the same income and circumstances. 

Interest and other income generated within an ISA remains tax-free, so the increase in savings tax rates strengthens the value of using available ISA allowances where appropriate. Retaining the £20,000 cash ISA limit also means savers will not be forced to allocate part of that allowance to investments simply to obtain the full £20,000 ISA shelter. 

What should savers consider now? 

Individuals should review how much interest their cash savings are generating and whether this is likely to exceed their PSA or starting-rate entitlement. The position should be considered across all taxable savings accounts, rather than account by account. 

Those with unused ISA capacity may also wish to consider whether holding eligible savings within an ISA is appropriate. The Budget’s decision to retain the £20,000 cash ISA limit preserves flexibility between cash and investment-based ISAs, although investment decisions should reflect an individual’s objectives and risk tolerance rather than tax considerations alone. 

The higher savings tax rates are a Budget 2026 announcement that requires Finance Bill 2026-27 legislation.  Likewise, given that regulations implementing the earlier £12,000 cash ISA limit were made before the Budget, savers and ISA managers should watch for the formal measures needed to implement the new £20,000 decision. 

Conclusion 

From 6 April 2027, taxable savings income is set to face rates of 24%, 44% and 49%, four percentage points above the rates applying in 2026/27.  Against that increase, retaining the £20,000 cash ISA limit gives savers greater scope to shelter interest from tax. Reviewing the balance between taxable savings and ISA holdings ahead of April 2027 may therefore be worthwhile, while keeping an eye on the legislation that will put the Budget measures into effect.