Martin Lewis issues warning to savers who will 'pay more tax' as Rachel Reeves floats ISA reform

Martin Lewis has issued an urgent warning to UK savers that the £20,000 tax-free ISA allowance could soon be drastically reduced to as little as £4,000.The Money Saving Expert founder believes the current allowance may be "taking its final breaths" as Chancellor Rachel Reeves looks to evaluate cash ISAs.In his latest newsletter, Lewis cited rumours suggesting the threshold could be slashed later in 2025. The change could be announced as soon as the Autumn Budget in October, leaving savers with only a few months to maximise their ISA benefits.Lewis warns that with "so much current uncertainty, anything could or couldn't happen, at any time". The current ISA allowance stands at £20,000 per tax year, with the 2025/2026 allowance beginning on April 6.Despite speculation that Rachel Reeves might cap ISAs at £4,000, no announcement was made during the last budget. According to Lewis, the concept behind potentially reducing the limit is to "encourage people to put the money in shares ISAs instead".However, he remains sceptical about whether this would work, stating: "Many will just keep saving but pay more tax." This would impact an estimated 7.9 million Britons who currently save using cash ISAs.Lewis reassures that any limit change "wouldn't impact any money you've already deposited, it'd just cut what you can put in, in future" and strongly advises savers to act quickly and review their existing ISA accounts, particularly those opened years ago."Unless you're in an absolutely pants cash ISA with a very low interest rate, which if you've had it for ten years, you probably are," he said.Do you have a money story you’d like to share? Get in touch by emailing money@gbnews.uk.The financial guru recommends switching to providers offering better rates. "Top variable rate at the moment is Tembo, 4.8 percent, top big name, Post Office, 4.4 percent," Lewis explained.He suggests that "if you plan to save in a cash ISA, all of this would suggest getting it in sooner would seem safer."The vast majority of savers will benefit from using their ISA allowance before any potential reduction. Lewis emphasises that savers must follow the proper procedure when transferring ISAs to maintain their tax-free status."What you need to do is, you need to get out of that cash ISA. I don't mean taking your money out of the cash ISA... cash ISA is just a savings account which you don't pay tax on. Don't overcomplicate it," he explained. The crucial step is to let the new provider handle the transfer process, according to the host of The Martin Lewis Money Show Live."You go to the new provider, and on the application form it will ask, 'Do you want to transfer any money across?'" Lewis said.LATEST DEVELOPMENTS:NS&I increases interest rates across a range of accounts in boost for savers - full list'Awful April': Jasmine Birtles explains how to protect your wallet as bills riseState pension 'isn't enough' as Brits told to boost retirement savings by £243k with 'simple' hacks"The new provider moves the money from the old provider for you, so it's still in the cash ISA status. Do not just withdraw the money yourself."Lewis reminds savers that they can have multiple ISAs across different providers."Some people, five years ago put £20,000 in, the next year £20,000, the next year £20,000... you could have them across lots of different cash ISAs," he explained.With the Autumn budget approaching in October, there is mounting concern that the allowance reduction may be announced."Whether it'd start immediately, or in January or April 2026, no one knows," Lewis admits.