ISA Changes from April 2027: What the New ISA Rules Could Mean for UK Savers
Quick summary: How ISAs are changing from April 2027?
From 6 April 2027, the overall ISA allowance is expected to remain at £20,000 per tax year, but the amount that some savers can pay into a Cash ISA will reduce. For those under 65, the annual Cash ISA limit is expected to fall from £20,000 to £12,000, while those aged 65 and over will continue to have access to the full £20,000 Cash ISA allowance.
There are also proposed anti-avoidance rules designed to stop people using Stocks and Shares ISAs as a substitute Cash ISA. Most notably, a flat 22% charge is expected to apply to interest earned on cash held within a Stocks and Shares ISA or other non-Cash ISAs.
We have had a number of questions from clients about the new ISA rules, so we have summarised what is changing, why it matters, and what practical steps savers and investors may want to consider before April 2027.
These changes are subject to consultation and final legislation, so the detail may change before the rules come into force.
What are the new ISA rules from April 2027?
The main ISA changes expected from 6 April 2027 are:
The Cash ISA allowance for under-65s will reduce from £20,000 to £12,000.
Anyone over-65 will still benefit from a £20,000 Cash ISA allowance.
The overall ISA allowance will remain at £20,000 per year.
For under-65s, transfers from Stocks and Shares ISAs into Cash ISAs are expected to be restricted. Transfers from Cash ISAs to Stocks and Shares ISAs should still be possible.
The £20,000 cash ISA allowance, and the ability to transfer from a Stocks and Shares ISA to a Cash ISA becomes an option in the tax year you turn 65.
A flat 22% tax charge is expected to apply to interest earned on cash held within Stocks and Shares ISAs and other non-Cash ISAs.
o Regardless of age.
o The charge is expected to apply regardless of your marginal tax rate, meaning non-taxpayers, basic-rate taxpayers, higher-rate taxpayers and additional-rate taxpayers could all face the same 22% charge on this type of interest.
o Importantly, this would sit outside the Personal Savings Allowance.
o The aim is to prevent savers from paying £20,000 into a Stocks and Shares ISA but leaving the money in cash to receive tax-free interest.
o ISA providers are expected to deduct the tax from relevant interest and pay it to HMRC, rather than individuals having to declare it separately on a tax return.
The Lifetime ISA (LISA) may also be replaced by a new First Time Buyer ISA, although further detail is expected following consultation.
o LISAs will be the latest property purchase savings vehicle to end up on the scrap heap!
Why is the Government changing ISA rules?
The policy aim is to encourage more people to invest for the long term, rather than holding large amounts in cash. Annual flows into Cash ISAs have often been significantly higher than the amounts added to Stocks and Shares ISAs, so the Government is trying to redirect some savings into investment markets.
Our concern is that ISAs have been popular partly because they are simple. Introducing different Cash ISA allowances by age, restrictions on transfers, and a new charge on cash held inside investment ISAs makes the system harder for savers to understand. In our view, this risks widening the advice gap that already exists in the UK.
How much tax could the new 22% ISA cash charge raise?
Based on current estimates of Stocks and Shares ISA values and average cash holdings, our calculations suggest the 22% charge on cash interest could raise approximately £55 million per year. In context, that is around 0.006% of annual UK tax receipts.
This assumes average cash holdings of around 2% within Stocks and Shares ISAs. In practice, many people may take steps to reduce unnecessary cash holdings, so the actual tax raised could be lower. ISA providers may also face additional administration, including deducting the charge, reporting it to HMRC, and adapting systems for age-based ISA allowances.
What should savers and investors consider before April 2027?
Be mindful of periods when a Stocks and Shares ISA may temporarily be held in cash.
o This could include phased investment or pound cost averaging.
o It may also apply where a portfolio is being de-risked.
o Cash may also build up when funds are being held for a planned property purchase or other short-term need.
Low-risk money market funds may be useful in some situations, but the new rules will need to be checked carefully once finalised.
The rules are designed to prevent an investment ISA from being used as a 100% cash-like holding.
As a firm, we do not typically hold large amounts of cash in our investment portfolios.
Our portfolios typically hold around 1% in cash, which is lower than the industry average.
Cash levels can increase during the year because of dividend and interest payments.
o Where appropriate, we will consider reinvesting excess cash as part of your regular review meeting.
Example: how much tax could apply to cash inside a Stocks and Shares ISA?
In our portfolios, we typically keep around 1% of the portfolio in cash. Assuming cash interest of approximately 3% and a 22% charge on that interest, the estimated annual tax cost would be relatively modest:
£250,000 portfolio would be ~ £16.50 in tax
£500,000 portfolio would be ~ £33 in tax
£750,000 portfolio would be ~ £49.50 in tax
£1,489,237 (the current value of the biggest ISA we manage) portfolio would be ~ £98 in tax
Once you look past the more alarming headlines, the additional tax for a well-invested Stocks and Shares ISA may be relatively small. However, it is still an extra tax charge and another example of a stealth tax that have creeping their way in over the past few years (Conservative and Labour Governments!).
The consultation process has started, with the changes expected to be included in legislation before coming into force from 6 April 2027. We will continue to monitor the detail and update clients as the rules are finalised.
Please get in touch if you would like to discuss anything within this newsletter.
Important note
This article is distributed for educational purposes only and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product. Reference to specific products is made only to help make educational points and does not constitute any form or recommendation or advice. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.
Article Written: July 2026, Tax Rates and Allowances May Change In The Future.
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