ISA changes 2027

The Individual Savings Account (ISA) has been one of the most dependable features of the UK savings landscape since its introduction in 1999.

For the best part of three decades, the rules have been straightforward: save up to your annual allowance, and everything inside the wrapper grows free of tax. From 6 April 2027, that simplicity changes. The government's reforms, announced at the Autumn Budget 2025, and set out in further detail by HMRC in June 2026, (with draft legislation still to follow), introduce a tiered system of allowances, new charges on cash held inside investment ISAs, and transfer restrictions that will change how investors and savers need to think about their ISA strategy.

This article sets out what is changing, who is affected, and what practical steps are worth considering before the new rules take effect.

The background: Why are ISAs changing?

The government's stated objective is to shift more UK savings away from cash and towards investment. The argument is that the UK has a savings culture that favours cash, with large sums sitting in low-return deposits that may provide less long-term benefit than invested assets. By reducing the amount that can be sheltered in cash ISAs and introducing measures to discourage long-term cash holdings inside investment wrappers, the government hopes to nudge savers towards equity and fund-based investment.

Whether that nudge will work as intended is contested. Industry response to the June 2026 announcement has been mixed, with some arguing that added complexity risks putting off first-time investors rather than encouraging them. The regulations are subject to a technical consultation, with draft legislation expected ahead of the regulations being laid in Autumn 2026. Some detail may therefore evolve before 6 April 2027, though the core framework is now confirmed.

The new Cash ISA limit: A two-tier system

The most widely publicised change is the reduction in the annual Cash ISA subscription limit for those under 65. From 6 April 2027:

• under 65: the annual Cash ISA limit reduces from £20,000 to £12,000
• 65 and over: the annual Cash ISA limit remains at £20,000
• overall ISA limit: unchanged at £20,000 for all ages until at least April 2031.

To be clear about how these figures interact: the £12,000 Cash ISA limit is a sub-limit within the overall £20,000 annual ISA allowance. An investor under 65 can still pay a total of £20,000 across their ISAs in 2027/28, but no more than £12,000 of that can go into a Cash ISA. The remaining £8,000, or more, would need to be directed to a Stocks and Shares ISA, Innovative Finance ISA, or Lifetime ISA.

The 65-and-over threshold applies from the start of the tax year in which the individual turns 65. So, an investor who turns 65 at any point during 2027/28 will benefit from the full £20,000 Cash ISA limit for that entire tax year.

2026/27: The last year of the £20,000 Cash ISA

For investors and savers under 65 who favour cash savings, 2026/27 is the final tax year in which the full £20,000 ISA allowance can be placed in a Cash ISA. Anyone who has not yet made full use of the current tax year's allowance and wants to maximise their Cash ISA contributions should be aware that this opportunity does not repeat for under-65s once the new rules come into force.

This is a straightforward but important planning point. A saver who pays £20,000 into a Cash ISA in 2026/27 and a further £20,000 in 2027/28, with up to £12,000 of that in cash, will have made use of the more generous regime while it remains available.

The 22% charge on cash in Stocks and Shares ISAs

The reduction in the Cash ISA limit creates an obvious question: can savers simply pay £20,000 into a Stocks and Shares ISA, leave it sitting in cash, and earn tax-free interest that way? The government has anticipated that and introduced measures to prevent it.

From 6 April 2027, any interest or alternative finance return paid or credited on cash held within a Stocks and Shares ISA or an Innovative Finance ISA will be subject to a flat-rate charge of 22%. This applies regardless of whether the account holder pays income tax at all: a basic-rate taxpayer, a non-taxpayer, and an additional-rate taxpayer all face the same 22% charge on that interest.

From the investor's perspective, the mechanics are straightforward: ISA managers will collect and pay the charge directly to HMRC. Investors will not need to declare this income on a tax return. The cash can continue to sit within the Stocks and Shares ISA; it simply stops being entirely tax-free once interest starts to accumulate.

It is worth noting that the Personal Savings Allowance does not apply to income arising within an ISA. The 22% charge is specific to cash held within non-cash ISAs and does not affect interest earned on savings held outside ISA wrappers, which continues to be tested against the Personal Savings Allowance in the usual way.

The 100% cash-like portfolio rule

A related restriction targets Stocks and Shares ISAs that are invested entirely in cash-like assets. From April 2027, a portfolio that consists 100% of cash-like investments will be classified as a non-qualifying investment within the ISA.

For these purposes, cash-like assets are defined narrowly: initially, the only assets within scope are Money Market Funds (MMFs). These are low-risk, highly liquid funds investing in short-term debt instruments that behave similarly to cash in terms of stability and return. Common holdings in Stocks and Shares ISAs, such as individual shares, unit trusts, investment trusts, exchange-traded funds (ETFs), and corporate or government bonds, including UK gilts, are explicitly excluded from the cash-like definition.

Where an ISA manager identifies that a portfolio has become 100% cash-like, they will be expected to work with the investor to either reinvest the assets within the wrapper or remove them from the ISA altogether.

The practical implication is clear: investors who use Money Market Funds within a Stocks and Shares ISA as a tactical cash park can continue to do so, provided at least some of the portfolio is invested in other qualifying assets. A portfolio that is 99% in a Money Market Fund and 1% in a listed equity would not breach the rule. A portfolio that is 100% in a Money Market Fund would.

The transfer restriction: A one-way gate

The third significant change is a restriction on transfers between ISA types. From 6 April 2027:

• transfers from Stocks and Shares ISAs into Cash ISAs will not be permitted for those under 65
• transfers from Cash ISAs into Stocks and Shares ISAs will continue to be permitted
• those aged 65 and over are exempt from the transfer restriction.

This is potentially the most consequential change for investors who may need to reduce risk in their ISA portfolio over time. An investor in their 50s or early 60s who currently holds a substantial Stocks and Shares ISA balance and expects to gradually move that money into cash ahead of retirement, a property purchase, or another significant goal will no longer be able to do so by transferring into a Cash ISA once the new rules are in place.

For anyone considering such a move, the window is now: transfers remain unrestricted until 5 April 2027. Investors who expect to need their ISA savings in cash within the next few years should carefully consider whether to act before the restriction takes effect.

Once an investor turns 65, the transfer restriction is lifted, and the higher £20,000 Cash ISA limit applies. The 22% charge on cash interest and the 100% cash-like portfolio rule are not age-related and continue to apply to all investors after 65. For investors approaching retirement, the practical constraint may therefore be limited. For those in their 40s and 50s with longer investment horizons who later change their plans, however, the loss of transfer flexibility could be more significant.

A Summary of the changes

Note: the £20,000 Cash ISA limit for those aged 65 and over operates as a sub-limit within the overall £20,000 annual ISA allowance, not in addition to it.

What this means in practice

For dedicated cash savers: Those who habitually use their full ISA allowance for cash savings and are under 65 face a direct reduction in their tax-free cash sheltering capacity. The gap between the old and new limit is £8,000 per year. Over a decade, compounded, that is a meaningful reduction in the amount of cash that can grow entirely free of tax.

For Stocks and Shares ISA holders keeping cash on the platform: The 22% charge on interest will change the calculation for investors who hold cash deposits or cash-equivalent funds within their investment ISA as a strategic reserve. For a basic-rate taxpayer who currently pays 20% on savings interest outside an ISA, the relative merits of different wrappers will shift from April 2027. The comparison between retaining cash inside a Stocks and Shares ISA (subject to the 22% charge) and holding it in a Cash ISA or outside a wrapper (where the Personal Savings Allowance applies) will depend on individual circumstances. Taking personal advice will help identify the most appropriate approach.

For investors approaching de-risking: Those who are moving from building up their investments to drawing on them, and who intend to gradually shift their ISA portfolio from equities to cash, need to act before April 2027 if they want to retain the full flexibility to do so. After that point, the Stocks and Shares to Cash ISA transfer route closes for under-65s.

For couples: Both partners retain separate ISA allowances. A couple where one partner is under 65 and the other has already turned 65 in the same tax year will have different Cash ISA limits available. The higher-limit partner can still shelter up to £20,000 in cash, while the under-65 partner is subject to the £12,000 cap.

The broader context: ISA rates from 2027/28

The ISA changes sit alongside a wider package of reforms to savings taxation announced at Autumn Budget 2025. From 6 April 2027, the income tax rates on savings income are also increasing: the basic savings rate rises to 22%, the higher savings rate to 42%, and the additional savings rate to 47%. These rates apply to savings interest earned outside the ISA wrapper.

The combined effect is to raise the after-tax cost of holding savings in a taxable environment at the same time as the government is reducing the availability of tax-free cash shelter. For savers who are not already making full use of their ISA allowance, the case for doing so becomes stronger. For those who are, the question is how to make the best use of the £20,000 overall allowance within the new, more constrained framework.

Planning points

The detail of the final regulations is still being consulted upon and may change. However, based on what is confirmed, the following planning points are worth considering now:

• Maximise Cash ISA contributions in 2026/27
  As noted above, this is the final tax year in which  the full £20,000 can be placed in a Cash ISA for savers under 65.
• Review Stocks and Shares ISA cash positions
  Investors holding significant cash balances, or Money Market Funds as a large proportion of their Stocks and Shares ISA, should review their position ahead of April 2027. After that date, interest on cash holdings becomes subject to the 22% charge, and a 100% cash-like portfolio will be disqualified.
• Consider de-risking transfers before the window closes
  For any investor who anticipates needing to move Stocks and Shares ISA funds into cash in the medium term, the opportunity to transfer into a Cash ISA remains open until 5 April 2027. After that date, this route is no longer available to under-65s.
• Plan for the age-65 transition
  For savers approaching their 65th birthday, the year in which they turn 65 brings a higher Cash ISA limit and the lifting of the transfer restriction from the start of that tax year. This is a useful planning horizon for those aged 62 to 64 who are thinking about ISA structure.
• Review couple-level planning
  Where partners have different ages compared to the 65 threshold, there may be value in allocating Cash ISA contributions to the partner who retains the higher limit, while directing Stocks and Shares ISA contributions to the other.

A note on timing and finality

It bears repeating that while the policy direction is confirmed, the final regulations are not yet in force. HMRC has indicated that draft legislation will be shared for technical consultation ahead of regulations being laid in Autumn 2026. The core framework, including the £12,000 limit, the 22% charge, the 100% cash-like rule, and the transfer restriction, is confirmed government policy. Details of implementation and edge-case treatment may be refined. Investors and savers should keep this in mind and be prepared for possible adjustments before the rules take effect on 6 April 2027.

What is clear is that the ISA system is changing in a meaningful way. The most useful step for investors and savers now is to understand the new structure, review their current ISA position, and take any time-sensitive action while the current, more flexible rules still apply.