Spring Budget 2026: Pensions, ISAs and Savings Changes

Quick answer

The Spring Budget 2026 made no headline changes to the main UK savings and investment allowances:

The Chancellor confirmed the British ISA — a proposed £5,000-extra allowance for UK-listed equities, announced in Spring Budget 2024 — has been formally abandoned following consultation. No replacement was proposed.

This is Part 3 of 5 in our Spring Budget 2026 series. See Part 1: Income tax and Part 2: NI.

The big story: frozen allowances meet rising rates

The story of UK savings taxation in 2025–26 is the collision between:

• Frozen allowances (last meaningfully changed in 2017 for the ISA, 2024 for dividend/CGT).
• Rising interest rates (4–5% deposit rates on cash savings in 2025–26 vs near-zero in 2020–22).

The arithmetic result: many more savers now have taxable savings income outside an ISA wrapper than at any point in the past decade.

Worked example — Sarah, £35k salary, £40k cash savings

Sarah keeps £40,000 in a non-ISA easy-access savings account paying 4.5% AER.

• Annual interest: £40,000 × 4.5% = £1,800/year.
• Basic-rate PSA: £1,000.
• Taxable savings income: £1,800 - £1,000 = £800.
• Income tax at 20%: £160/year.

Five years ago at 1% interest, her £40,000 would have generated £400/year of interest — fully within the PSA, no tax. Today she pays £160/year just for keeping the same balance in the same type of account.

The fix is structural

The two practical responses for savers:

1. Move cash savings into a Cash ISA — sheltered, but capped at £20k/year of new contributions. (You can have multiple Cash ISAs from April 2024.)
2. Use Premium Bonds — interest treated as tax-free prize income, currently ~4.0% effective. Capped at £50,000 per person.

For long-term savings, the Stocks & Shares ISA remains the most powerful tax shelter — see our compound interest case study.

Pensions — the freezing that wasn't reversed

The pension annual allowance was raised from £40,000 to £60,000 in April 2023 — a substantial liberalisation. It has been frozen at £60,000 since.

What this allows

For most workers, £60,000 of annual contributions is far more than they could realistically afford. The limit primarily matters for:

• Higher earners stuffing pensions in their peak earning years (40s–50s).
• People using carry-forward — you can use up to three years of unused allowance from previous tax years.
• Late-career catch-up before retirement.

The tapered annual allowance trap

For people with adjusted income over £260,000, the £60,000 allowance tapers by £1 for every £2 of income above that — reducing to a minimum of £10,000 at adjusted income of £360,000.

A consultant doctor on £180,000 base + £100,000 private practice income (adjusted income £280,000) has their annual allowance reduced from £60,000 to £50,000. NHS pension accrual alone can exceed this in some cases, triggering an Annual Allowance Charge — the long-running "NHS pension tax" problem.

Lifetime Allowance — still gone

The Lifetime Allowance was abolished from 6 April 2024 (after being effectively frozen at £1,073,100 from 2020). It was replaced by:

• Lump Sum Allowance (LSA): £268,275 — the maximum tax-free lump sum.
• Lump Sum and Death Benefit Allowance (LSDBA): £1,073,100 — the maximum tax-free lump sum plus death benefits.

Both frozen for 2026/27 — no Budget change. The LSA is now the binding constraint for people approaching retirement with large pension pots.

ISAs — the multiple-same-type rule beds in

From 6 April 2024, you can pay into multiple ISAs of the same type within one tax year. So you can:

• Open a Cash ISA at Bank A in April, paying in £10,000.
• Open another Cash ISA at Bank B in October at a better rate, paying in another £5,000.
• Total Cash ISA contributions £15,000, well within the £20,000 overall limit.

The Budget confirmed this is permanent and not subject to review. The Chancellor also reiterated existing flexibility:

• Flexible ISAs: withdrawals can be replaced within the same tax year without using fresh allowance — but only if the provider offers it (most don't).
• ISA transfers: transferring an old ISA to a new provider doesn't count against this year's £20,000 — only fresh contributions do.

Lifetime ISA — the unfixed 25% problem

The LISA pitfall went unaddressed again:

• 25% government bonus on contributions up to £4,000/year (so £1,000 free per year).
• 25% withdrawal penalty if you take the money out for anything other than:
  • A first home up to £450,000, or
  • Retirement from age 60.

The 25% penalty is applied to the entire balance including the bonus, which means you effectively lose 6.25% of your own money as well as the bonus on early withdrawal. Long-standing campaign asks include:

• Raise the £450,000 house-price cap (set in 2017, unchanged despite house-price inflation).
• Make the penalty only the bonus, not the principal.
• Lower the age 60 retirement threshold to 55.

None of these were granted in Spring Budget 2026.

Dividend allowance — frozen at £500

The dividend allowance has been on a long downward path: £5,000 → £2,000 → £1,000 → £500 over the past decade. Frozen at £500 in this Budget.

For investors with non-ISA holdings, the small dividend allowance means almost any meaningful dividend income generates a tax liability. The implication remains: wrap investments inside an ISA wherever possible.

Worked example — Mark, £55k salary, £30k non-ISA equity portfolio

Mark's non-ISA portfolio yields ~3% in dividends = £900/year.

• Dividend allowance: £500.
• Taxable dividends: £400.
• Tax at higher-rate (33.75%): £135/year.

Plus any capital gains crystallised above the £3,000 exemption taxed at 24%.

Inside an ISA, both would be zero.

Capital Gains Tax — frozen at £3,000 exemption

The annual CGT exemption has fallen sharply: £12,300 → £6,000 → £3,000 over 2023–2024. Frozen at £3,000 in this Budget.

Rates (2026/27, unchanged):

*BADR rate rises from 10% (pre-April 2025) → 14% (April 2025–March 2026) → 18% (April 2026 onwards).

The crypto trap

HMRC treats each crypto disposal — including swaps (BTC → ETH), gifts and spending crypto on goods — as a taxable event. With the £3,000 exemption, even small crypto holders increasingly trip into reportable territory. The 2025 data-sharing rules requiring exchanges to report UK customer activity to HMRC mean enforcement is much tighter than it used to be.

The "British ISA" — quietly buried

The proposed British ISA, announced in Spring Budget 2024, would have given UK savers an extra £5,000 ISA allowance specifically for UK-listed equities. The Chancellor confirmed in Spring Budget 2026 that the policy has been discontinued following a 2025 consultation that found:

• Consumer demand was modest.
• Complexity of a separate sub-account structure outweighed benefits.
• Existing ISA flexibility (now allowing multiple same-type ISAs) addressed most of the policy goals.

No replacement was announced. The £20,000 total ISA allowance remains the single headline number.

What savers should do for 2026/27

1. Use your £20,000 ISA allowance, prioritising:
   • Cash ISA for emergency fund (sheltering interest > PSA).
   • Stocks & Shares ISA for long-term (sheltering future dividends + gains).
2. Open a LISA if you're 18–39, even £1 of contribution — the bonus rule is permanent once activated.
3. Top up your pension via salary sacrifice if your employer offers — saves income tax + NI on the way in.
4. Use the £3,000 CGT exemption by harvesting gains annually before 5 April.
5. Consider Premium Bonds for surplus cash savings above the ISA allowance (capped £50k, tax-free).
6. Don't leave cash sitting outside ISA or Premium Bonds if you're earning >4% interest and approaching your PSA.

Coming next in the series

• Part 4: Housing, SDLT and the property market
• Part 5: Business taxes and the self-employed

Sources

• HMRC: Individual Savings Accounts (ISAs)
• HMRC: Tax on your private pension contributions
• HMRC: Tax on dividends
• HMRC: Capital Gains Tax
• gov.uk: Lifetime ISA
• HM Treasury: Spring Budget 2026 (full document)
• OBR Economic and fiscal outlook (March 2026)