Budget rewrites UK saving rules

A Budget Nudge With Uneven Impact

The Budget changes to tax and ISA rules introduced by Chancellor Rachel Reeves are designed to push UK savers toward investment rather than cash. However, the unintended consequences are unlikely to be evenly shared. Women, who rely on cash ISAs far more than men, are set to feel the greatest pressure as tax-efficient cash options are narrowed and savings income faces higher tax.

From April 2027, the annual cash ISA allowance for those under 65 is due to fall from £20,000 to £12,000. Alongside this, income tax on savings and property income is set to rise by two percentage points from 2026, tightening the overall framework for cash-based saving under UK regulation.

Why Women Are More Exposed

Data from HMRC shows women open significantly more cash ISA accounts each year than men. This pattern is not driven by aversion to investing, but by the realities of many women’s financial lives, which place a premium on flexibility and certainty.

As a result, policies that reduce the tax-efficient space for cash savings risk weakening women’s financial resilience more than men’s. What appears to be a neutral regulatory change has a clear distributional effect.

Liquidity as a Necessity, Not a Preference

Childcare costs, career breaks, part-time work and periods of self-employment mean ready access to cash is often essential. Savings held in cash provide stability during maternity leave, gaps between freelance contracts or sudden income disruptions.

For many households, the predictability of cash savings is not a conservative choice but a practical one, shaped by labour market realities and existing gender pay gaps.

The Changing Maths of Saving

Higher tax on interest income will make it harder for cash savings to keep pace with inflation. As ISA allowances shrink, more savers will exhaust their tax-free limits and become exposed to tax on interest that further erodes real returns.

With inflation still a concern in the UK, savers may need significantly higher headline interest rates simply to preserve spending power. For basic-rate taxpayers in particular, the margin for error is becoming thinner.

Adapting Within the Rules

Advisers point to a range of responses within the existing regulatory framework. These include fully using remaining allowances, spreading savings across partners to maximise tax-free interest and considering products that offer instant access with different tax treatments.

Some higher-rate taxpayers may look beyond traditional savings accounts to other instruments as part of a broader reallocation away from taxed cash. However, these alternatives come with trade-offs, including lack of guaranteed returns or exposure to capital risk.

Policy Tension and Market Impact

The reforms have prompted pushback from parts of the financial sector, particularly building societies concerned about the effect on mortgage funding. As a result, some elements of the proposals have been paused or adjusted following consultation.

Despite this recalibration, the overall direction of UK regulation remains clear: encouraging investment over cash while attempting to manage wider economic consequences.

A Distributional Dilemma

Steering savers toward the stock market may support national investment goals, but it risks widening existing gender gaps in financial security if those who need liquidity most are left with fewer protected options.

Advisers stress that maintaining a consistent saving habit and planning around when money will be needed is now more important than ever, regardless of the vehicle used.

Navigating a Narrower Landscape

Women face a more constrained savings environment under the new rules, but financial resilience is still achievable. Careful planning, active rate-shopping and a thoughtful mix of accounts and instruments can soften the impact.

For policymakers, the challenge will be ensuring that the push toward investment does not come at the expense of financial security for those with the least flexibility.

Source: Noah Wire Services

Read more in our Knowledge Hub.