Budget November 2025: A shift in savings policy

Key takeaways:

• Tax-free limit on cash ISAs drops from £20,000 to £12,000 for under 65s from April 2027.
• Dividend income tax rates rise by 2% from April 2026, tax on savings income rates from April 2027.
• Annual salary sacrifice pension contributions above £2,000 will lose their National Insurance exemption from April 2029.

The Budget delivered by Chancellor Rachel Reeves on 26 November 2025 included a change to annual cash ISA allowance for the under 65s. Whilst the overall annual ISA allowance stays at £20,000, under 65s will only be able to put £12,000 of that into a cash ISA. There’s no change for the over 65s who can put all of their annual allowance into a cash ISA if they wish.

The government is clearly aiming to encourage households to move away from low-yield cash savings and into investments that can support UK businesses and long-term growth.

For many investors, this change could feel like a nudge to reconsider how they allocate their savings. While cash ISAs have been a relatively safe and tax-free way to store money, they rarely keep pace with inflation. By limiting the amount that can go into cash ISAs, more savers may consider stocks and shares ISAs, which can provide potentially better long-term returns. Find out more about tax-efficient savings options.

A change in dividend income tax rates (outside of tax-advantaged wrappers like an ISA or personal pension) will see a rise of 2% across the board from April 2026. The standard dividend allowance remains £500. The ordinary rate will rise from 8.75% to 10.75%, the upper rate from 33.75% to 35.75%. The additional rate will remain unchanged at 39.35%. 

Tax on savings income will also increase by 2% from April 2027. The basic rate will rise from 20% to 22%, the higher rate from 40% to 42% and the additional rate from 45% to 47%. The personal savings allowance remains at up to £1,000 for basic rate tax payers (£500 for higher rate taxpayers and zero for additional rate taxpayers). As ever, savings and dividend income can be protected from liability in a tax-efficient wrapper such as an ISA or pension. 

Workplace pension contributions made under a salary sacrifice arrangement above a £2,000 annual threshold will lose their exemption from National Insurance contributions. Not just yet though – it’s scheduled to begin from April 2029. The Octopus Money Direct pension is not a workplace pension.

And as announced in the Autumn 2024 Budget, the government will bring most unused pension funds and death benefits into scope of Inheritance Tax from 6 April 2027.

What this means for everyday investors?

For many, the change to cash ISA limits could be an opportunity. Stocks and shares ISAs allow tax-free growth on dividends and capital gains, and over time, they tend to outperform cash savings. For pension holders, the Budget also reinforced the value of long-term investing, though if you have a workplace pension scheme you may want to review how the change to tax limits on salary sacrifice pension contributions may affect you.

Conclusion

For long-term investors and pension holders, the November 2025 Budget is a reminder that government policy can directly shape personal finance choices. Limiting cash ISAs may feel restrictive, but it also highlights the potential long-term benefits of investing. The message from the Chancellor in this Budget seems to be that while cash remains useful, the future of saving, at least for the current government, is moving towards investment. However you save and invest, it’s a good idea to review your plans regularly and especially when rules and allowances change.