Make the most of your cash ISA allowance while you have it

Thankfully, Chancellor Rachel Reeves confirmed there would be no cuts to the cash ISA allowance in the Spring Forecast which was delivered on 26th March 2025. This is good news as millions of people are being dragged into paying more tax due to frozen personal tax allowances, and higher interest rates.  

That said, just because nothing is changing now doesn’t mean changes won’t come later. So, if you haven’t maxed out your £20,000 annual ISA allowance, now’s the time to take full advantage while you still can.

The tax squeeze has been building for years. Back in March 2021, then-Chancellor Rishi Sunak announced a freeze on personal tax allowances until 2025/26. That freeze was later extended to 2027/28, meaning more and more people are paying tax for the first time—or finding themselves in a higher tax bracket.

The Personal Allowance—the amount you can earn before paying income tax—has been stuck at £12,570 since April 2021, despite rising wages. On top of that, the thresholds for basic, higher, and additional rate tax have also remained frozen. In fact, the 45% additional tax rate now kicks in at an income threshold of £125,140, down from £150,000 previously, so more people are being caught in the highest tax band.

HMRC data shows the impact: in 2024-25, there are an estimated 37.4 million income taxpayers—up from 33 million when the freeze first hit in 2021-22. That includes three million more people now paying higher-rate tax and 400,000 pushed into the top tax bracket.

Savers aren’t escaping the pain either. The Personal Savings Allowance (PSA) has been frozen since it was introduced in 2016. That might not have been a big deal when interest rates were low, but with rates climbing, more people are hitting their PSA limits with far smaller deposits.

Basic-rate taxpayers can still earn £1,000 in savings interest tax-free, but higher-rate taxpayers only get £500, and additional-rate taxpayers get nothing. That means a lot of savers are now facing unexpected tax bills on their interest earnings, especially if they’ve been pushed into a higher tax bracket.

This is why ISAs remain such a valuable tool. Any interest earned within an ISA stays completely tax-free, regardless of the amount, making them a great way to shelter your savings from the taxman.

If you haven’t maxed out your ISA allowance yet, now’s the time to act. There are less than two weeks left to use this year’s allowance, and once it’s gone, it’s gone. And why not get ahead by using next year’s allowance as soon as possible? The sooner you do, the more tax-free interest you can earn.

And don’t neglect your old ISA accounts. Remember that transferring an existing ISA from a previous tax year will not affect your current tax year allowance, so you may as well make sure you are making your older savings work as hard as any new cash you are depositing.  

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The opinions shared in this article are solely those of the individual and they do not necessarily reflect those of The Private Office.