Every year around Budget time, a certain type of Briton sits a little more upright on the sofa, mutes the football, and waits to hear whether the Chancellor is about to do something to their ISA. This year, like most years recently, the answer was “sort of, but not in the way you were hoping.” So let’s take stock of what’s actually happened to the Individual Savings Account over the last decade, because it’s a useful case study in how a “tax-free” allowance can quietly become less generous without anyone ever technically cutting it.
The Headline Number Hasn’t Moved Since 2017
Here’s the bald fact: in the 2016/17 tax year, the overall ISA allowance was £15,240. For 2017/18, it jumped to £20,000, a genuinely generous increase. And then… nothing. A decade on, the adult ISA allowance for 2026/27 is still £20,000. Not adjusted for inflation, not nudged up for fiscal drag, just sitting there, exactly where George Osborne left it.
To put that in context: £20,000 in 2017 would need to be roughly £27,000 to £28,000 today just to have the same purchasing power, based on cumulative CPI inflation since then. So in real terms, your ISA allowance has shrunk by around a quarter without a single politician ever standing up and saying “we are cutting your ISA allowance.” That’s the magic of a freeze. It’s a tax rise that nobody has to vote for, because it just sort of… happens, year after year, while everyone’s attention is on the headline rate of income tax (which, conveniently, has also been frozen since 2021 and is staying that way). And it’s not just frozen for now. The Autumn Budget 2024 confirmed the £20,000 limit will remain frozen until 2030. So we’re not looking at a decade of stagnation; by the time anyone touches it again, it’ll be closer to fourteen years. For a policy explicitly designed to encourage saving and investing, that’s a fairly bold definition of “encourage.”
The Real Story Is What’s Happening Outside the Wrapper
Here’s where it gets more interesting, and where I think the “ISA freeze” headline actually understates what’s going on. While the ISA allowance itself has been gathering dust, the tax treatment of money held outside an ISA has been getting steadily, almost aggressively, worse, which means the relative value of your ISA allowance has actually gone up, even as its absolute value has eroded. Take the dividend allowance. Introduced in 2016 at a fairly generous £5,000, it has been cut and cut again, down to £2,000, then £1,000 in 2023/24, and now just £500 for 2024/25 onwards. That’s a 90% reduction in less than a decade. If you’re a higher-rate taxpayer holding, say, £30,000 of dividend-paying shares outside an ISA with a 4% yield, you’re now generating £1,200 of dividend income, of which £500 is tax-free and £700 is taxable at 33.75% (the higher rate on dividends), roughly £236 a year in tax that simply didn’t exist a few years ago on the same portfolio. And from April 2026, the government has confirmed both the ordinary and upper rates of dividend tax are rising by a further 2 percentage points on top of that.
Then there’s capital gains tax. The annual exempt amount, the profit you can bank each year before CGT bites, has gone from £12,300 in 2022/23, to £6,000 in 2023/24, to just £3,000 from 2024/25 onwards, where it remains frozen for 2026/27. That’s a 75% cut in two years. On top of that, CGT rates on shares were aligned with property rates from October 2024, meaning basic-rate taxpayers now pay 18% and higher-rate taxpayers 24% on gains, up from 10% and 20% previously. Sell a modest unwrapped portfolio that’s done reasonably well over a few years, and you can now find yourself with a CGT bill on a sum of money that, five years ago, would have sailed through completely tax-free. Put it together and the picture is this: the government hasn’t really been “cutting” the ISA allowance, it’s been quietly turning up the temperature on everything else, so that the ISA wrapper you already had has become dramatically more valuable simply by standing still. Which, depending on your politics, is either a clever bit of fiscal engineering or a fairly sneaky way of raising taxes on ordinary savers while keeping the “we haven’t touched your ISA” line technically true. I’ll leave you to decide which.
And Now: The Cash ISA Gets Rationed Too
Just when you thought the ISA itself was the one constant in this whole mess, the Autumn Budget 2025 announced that from April 2027, savers under 65 will only be able to put £12,000 of their £20,000 allowance into a Cash ISA, down from the full £20,000, with the remaining £8,000 only shelterable in a Stocks & Shares ISA, Innovative Finance ISA, or Lifetime ISA. Savers aged 65 and over keep the full £20,000 cash allowance.
The stated rationale is to nudge more household savings into the stock market, on the theory that this is good for UK companies and for savers’ long-term returns. I have some sympathy with the “we need more investment in UK plc” argument, but forcing people who simply want the security of cash into equities they didn’t ask for, by shrinking their tax-free shelter for the thing they actually wanted, feels less like encouragement and more like herding. If the government wants people to hold more shares, the honest approach is to make share-holding more attractive on its own merits, not to make the alternative less convenient. One analysis I came across calculated that someone depositing the full £20,000 a year into a cash ISA at 4.5% over a decade ends up with roughly £246,000 tax-free, versus around £148,000 under the new £12,000 cap, a gap of nearly £100,000 over ten years. That’s not a rounding error.
So What Do You Actually Do With This?
First, the obvious bit: if you can fill your ISA allowance, you should, while it’s still £20,000 and still flexible. Use it. A couple can shelter £40,000 a year between them, and since April 2024 you’re free to spread that across multiple providers and multiple ISAs of the same type, which removes a lot of the old faff.
But the more interesting question, and the one I suspect a lot of readers actually want answering, is: what do you do once you’ve maxed it out? Because plenty of people reading this will have used their £20,000, and still have money left over to put to work, and that’s where it gets less straightforward.
A few thoughts, roughly in order of how boring (and therefore, in my view, sensible) they are:
Pension contributions are usually the first port of call, and for good reason: the annual allowance is £60,000 for most people, dwarfing the ISA, and you get tax relief going in as well as tax-free growth. The trade-off is you can’t touch it until your late 50s at the earliest, but if this is genuinely surplus money, that’s often not a problem.
NS&I Premium Bonds are worth a mention because they’re 100% backed by HM Treasury (so no FSCS limit worries, more on that misconception in the next article) and any prizes are tax-free, which matters more than it used to now that the dividend and CGT allowances have been gutted. The expected return is modest and lumpy by design (you might win nothing for years) but for genuinely “I don’t want to think about this” money, it has its place.
UK gilts held directly, outside an ISA, are exempt from capital gains tax regardless of your wrapper situation, a quirk that’s existed for years but has become considerably more relevant now that the general CGT allowance has shrunk to £3,000. If you’re holding a gilt to maturity, any gain on the capital is tax-free; only the coupon income is taxable (and even that can be managed around your Personal Savings Allowance). With gilt yields where they are at the moment, that’s a genuinely useful, if unglamorous, option for money that’s spilled over your ISA allowance, and a good segue into why I think fixed income deserves more attention than it’s getting, which is exactly where we’re heading next.
The honest summary of the last decade of ISA policy is this: the headline number hasn’t moved, but almost everything around it has, mostly in directions that make the ISA more precious and the alternatives more painful. Use the allowance. Use it early in the tax year if you can. And don’t assume that because the £20,000 figure looks familiar, the rules around it are standing still.