ISA Revolution 2025: Key Changes and Opportunities in UK’s Tax-Free Savings Framework

Introduction

Individual Savings Accounts (ISAs) have been a cornerstone of UK savings since their 1999 introduction, offering tax-free returns on interest, dividends, and capital gains. Their popularity is evident from recent government statistics, with approximately 12.4 million adult ISAs subscribed to in 2022/23, accumulating total deposits of around £71.6 billion.

Current Framework and Changes

In the 2025 to 2026 tax year, savers can invest up to £20,000 tax-free through ISAs. Significant changes are coming into effect from July 15, 2025, including new regulations for recognised funds and the introduction of Long-Term Asset Funds (LTAFs) as qualifying investments for innovative finance ISAs.

A notable upcoming change requires that from April 6, 2027, new ISA subscribers must provide their National Insurance number or confirm their ineligibility before opening an account.

Market Performance and Rates

The ISA market has shown remarkable growth, with the number of cash ISAs reaching a record high at the start of September. This marks the eighth consecutive month of increase in available cash ISAs, providing a silver lining despite recent rate fluctuations.

While the average easy access ISA rate has decreased to 2.82% and the average one-year fixed ISA rate dropped to 3.91%, many leading ISA rates have remained stable, offering savers an opportunity to secure competitive returns.

Government Strategy and Future Outlook

The government’s current focus centers on promoting long-term investment in UK businesses. The strategy aims to encourage shifting savings from cash into investments, supporting capital markets and generating economic growth while creating new opportunities for investors.

However, this approach requires careful balance, as not all savers are comfortable with investment risk, and many value the stability offered by Cash ISAs. Future reforms will need to address these diverse preferences.

Practical Implications for Savers

Savers can consolidate their old ISAs into one account to potentially secure better rates on their entire savings. However, it’s crucial to ensure combined savings with one financial institution don’t exceed £85,000 to remain within the UK’s savings safety limit.