Cash ISA Cut Scrapped: What It Means for Self-Employed Savers

Tax Queen

Tax Expert @ Pie

4 min read

What You Need to Know

If you're self-employed and keep some savings in a cash ISA, nothing about your tax bill or filing changes this year. Reports from the Budget say the planned cut to the cash ISA limit from April 2027 has been dropped. That means you can keep putting up to £20,000 a year into cash. [Editor Note: Unverified figure - check against HMRC guidance]

The main thing to do now is check where your savings are held. Interest earned inside an ISA is tax-free and stays off your return. Interest from ordinary accounts may count towards your personal savings allowance, which is the amount of interest you can earn before any tax is due.

What Was Planned and What Has Changed

The original plan, announced by former Chancellor Rachel Reeves, would have cut the cash ISA limit to £12,000 a year for savers under 65. The overall ISA limit would have stayed at £20,000, but the remaining £8,000 could only have gone into a stocks and shares ISA.

Chancellor John Healey told the Commons that the cash ISA limit will instead stay at £20,000 for people of all ages. He also said the government will work with the industry on a new "Starter ISA" for first-time investors. No details of it have been published yet. [Editor Note: Unverified policy detail - check against HMRC and GOV.UK Budget documents]

Why This Matters for Your Self Assessment

Many sole traders and freelancers set money aside for their tax bill, often in an easy-access savings account. If that money sits outside an ISA, the interest counts as taxable income and may need to go in the savings interest section of your SA100 tax return.

Savings interest is added to your profits, so it can push you into a higher tax band, and that reduces how much interest you can earn tax-free. Keeping the full £20,000 cash ISA limit gives you more room to protect your tax pot and emergency fund from that.

Before you move money, check that you'll be able to get it back in time for your 31 January payment, because some cash ISAs are fixed-term. If you're new to filing, our guide on how to file your UK tax return explains where each type of income goes.

How Much Interest Can You Earn Tax-Free?

Outside an ISA, your personal savings allowance decides how much interest you can earn before tax. Basic rate taxpayers get £1,000 a year, higher rate taxpayers get £500, and additional rate taxpayers get nothing. The allowance covers the interest from all your ordinary accounts added together.

Some people with low earnings can also use the starting rate for savings, which covers up to £5,000 of interest. It shrinks by £1 for every £1 of other income above your Personal Allowance, so most sole traders with steady profits won't get it.

A Worked Example

Say you're a self-employed designer and a higher rate taxpayer. You keep a £15,000 tax pot in an easy-access account paying 4%, so it earns £600 of interest in a year. The first £500 is covered by your allowance, and the other £100 is taxed at 40%, adding £40 to your bill. That's a small sum, but it grows as your tax pot and interest rates rise.

Held in a cash ISA instead, the same £600 would be tax-free and wouldn't need to go on your return at all.

Things to Check Before You Move Your Tax Pot

Whether the ISA is easy access or fixed term, and whether any withdrawal limits apply
Whether it's a flexible ISA, which lets you take money out and put it back in the same tax year without using up more of your allowance
That you'll have the cash ready for your 31 January and 31 July payments

Keeping Your Savings Records Straight

Your bank can give you a yearly statement showing the interest paid on each account that isn't an ISA. Keep these statements, along with the dates you opened or closed accounts, so the figure on your return matches the interest your bank reports to HMRC.

When you know how much interest you've earned and how much profit you've made, it's easier to decide how much to keep in an ISA and how much in an ordinary account. It also means you won't get a surprise when you add everything up for 2026-27.

Pie Tax is self-assessment software for sole traders, freelancers and landlords. It pulls in your income and sorts your allowable expenses, so you can see your profit next to your savings interest well before the deadline.

If you'd like a clearer picture of how your savings and profits shape your next bill, the easiest place to start is your own figures. Try Pie Tax for free.