Autumn Budget ISA changes: What IFAs need to know before client reviews

Introduction

The Chancellor’s Autumn Budget confirmed a major shift in how clients under 65 can use their ISA allowances.

From 6 April 2027, the amount they can place into a cash ISA falls sharply from £20,000 to £12,000, while the overall ISA allowance remains £20,000—creating a brand‑new advice friction point for clients who historically funnel their full allowance into cash.

What changed, exactly?

• Cash ISA cap for under-65s

From 6 April 2027, clients aged 64 or under will only be able to contribute £12,000 per tax year to cash ISAs.

• Overall ISA allowance unchanged

The £20,000 total annual ISA allowance remains in place, meaning the remaining £8,000 must go into investment ISAs if clients want to fully utilise the allowance.

• Over-65s exempt

Those aged 65+ retain the full £20,000 cash ISA allowance.

• Applies only to new money

Existing cash ISA savings stay protected and continue to grow tax-free.

• Policy intent

Government hopes the shift nudges more savers toward long-term investing rather than holding disproportionately large amounts in cash.

Why it matters

This is the first cut to the cash ISA allowance in a decade, and for some clients it radically alters the mechanics of efficient tax‑free saving.

Several implications stand out:

• Behavioural frictions

Many clients max out cash allowances due to accessibility and perceived safety. A forced reallocation introduces discomfort and indecision.

• Interest vs tax dynamics

From April 2027, tax on savings interest outside ISAs rises for all taxpayer bands, increasing the importance of smart ISA allocations.

• Government intention vs saver reality

Treasury aims to push savers toward equity exposure, but MPs and committees question whether this shift will genuinely change behaviour.

• Industry concern

Providers and analysts warn that restricting cash ISA capacity may not automatically convert habitual savers into investors without additional guidance and support.

Implications for advice

For IFAs, this change creates new advice touchpoints, particularly for clients overfunding cash year after year:

1. Re-benchmarking client liquidity needs

With only £12k of “risk-free” tax-protected space, advisers will need to reassess how much cash clients genuinely need for emergency buffers, near‑term spending, or peace of mind versus what should be working harder.

2. Structuring the remaining £8k investment allowance

Clients who previously avoided market exposure now must make choices. That creates space for:

• Risk-graded investment recommendations
• Hybrid cash/investment strategies
• Education around volatility and long-term return expectations.

3. Reframing cash as a tool, not a default

Research shows many savers hold far more cash than necessary, missing long-term growth opportunities. Industry commentators note that the cash ISA restriction may highlight this imbalance - but advisers still need to guide clients through the mindset shift.

4. Managing client expectations around "loss aversion"

A forced move from cash to investments may heighten emotional resistance, especially for risk-averse clients. Preparing clients early - via review cycles and scenario modelling - will be essential.

Where smoothing may help

For clients nervous about volatility but now compelled to allocate beyond their cash comfort zone, smoothed investment solutions can offer:

• Reduced visible volatility relative to most daily-priced funds
• More consistent return progression, supporting emotional comfort
• A behavioural bridge between cash and fully market-linked portfolios

Given the policy’s aim to increase long-term investing, smoothing may serve as a valuable midpoint - especially for clients transitioning from all-cash ISA strategies or those with a history of risk aversion.