If you keep some savings in an ISA, there’s a big change on the way that’s worth knowing about now rather than waiting until it comes into effect.
From April 2027, the government is bringing in new rules that will change how much cash you can keep in different types of ISAs, and it’s introducing a brand-new tax charge on cash held inside investment ISAs too. It’s all part of a bigger push to get people investing more instead of just holding cash, but the details matter a lot depending on your own situation. Here’s exactly what’s changing and what it could mean for your savings.
Your total ISA allowance is staying the same.
First, the reassuring part. Everyone in the UK aged e18 or over will still get an overall ISA allowance of £20,000 each tax year, and that figure isn’t changing at all. What’s changing is how much of that £20,000 you’re allowed to put specifically into a cash ISA.
From April 2027, anyone under 65 will only be able to put up to £12,000 of that allowance into a cash ISA each year. The remaining £8,000 would still count towards your £20,000 total, but you’d need to put it into a stocks and shares ISA instead if you wanted to use the full allowance.
Savers aged 65 and over are protected from this change.
If you’re already 65 or older, or you turn 65 during the tax year in question, none of this actually affects you. You’ll keep the full £20,000 cash ISA allowance regardless of these changes, since the government has specifically carved out an exception for older savers.
That decision out came about partly because of pushback when the cut was first announced, with critics pointing out that older savers weren’t really the intended target of a policy designed to encourage younger people to invest more. Whether that reasoning holds up in practice remains to be seen, but for now, anyone 65 and above can continue banking their full cash allowance exactly as before.
A new 22% tax is coming for cash held in investment ISAs.
Here’s the part that’s caught a lot of people off guard. From April 2027, any interest earned on cash sitting inside a stocks and shares ISA will be taxed at 22%, regardless of your age or how much tax you’d normally pay elsewhere.
This applies to everyone, including people who don’t usually pay any tax at all on their savings. The idea behind it is to stop people simply parking large amounts of cash inside an investment ISA as a workaround, rather than actually investing it or keeping it in a proper cash ISA instead.
Why is the government introducing this charge?
Once the cash ISA limit drops for under-65w, there’s an obvious loophole some savers might try to use. Instead of sticking to the lower cash ISA limit, someone could simply put extra cash into a stocks and shares ISA and just leave it there earning interest, effectively using it as a second cash account.
The new tax charge is designed specifically to close that loophole and remove the incentive to do it. By taxing interest earned on uninvested cash inside these accounts, the government hopes people will either genuinely invest their money or keep their cash savings within the proper cash ISA limits instead.
Moving money between ISA types is also becoming more restricted.
Alongside the tax change, the rules around transferring money between different types of ISA are getting tighter too. From April 2027, anyone under 65 won’t be allowed to transfer money from a stocks and shares ISA into a cash ISA anymore.
Transfers in the other direction, moving money from a cash ISA into a stocks and shares ISA, will still be allowed as normal. This one way restriction lines up with the government’s broader goal of encouraging people to move towards investing rather than making it easy to move money back into cash whenever it suits them.
Money market funds will face new limits within investment ISAs.
Money market funds, sometimes described as cash-like investments, are also being brought into these new rules. Investors will still be allowed to hold them inside a stocks and shares ISA, but they won’t be permitted to make up the entire portfolio anymore.
If your whole stocks and shares ISA ends up being made up of money market funds, it risks being treated as effectively holding cash rather than actually investing, which could bring you back into the scope of the new charge. Keeping a well-rounded mix of real investments alongside any cash like holdings will matter more than ever once these rules come into force.
What this could mean if you regularly keep cash in your investment ISA
If you’re someone who tends to leave a decent amount of cash sitting inside a stocks and shares ISA, perhaps while deciding what to invest in next, it’s worth paying close attention to how these changes might affect you specifically. The exact impact will depend on how much cash you typically hold and what interest rate your provider pays on it.
For some savers, this might mean rethinking how long they leave cash sitting uninvested, or considering whether it makes more sense to keep spare cash savings within the cash ISA limit instead. Since these rules don’t take effect until April 2027, there’s still time to think through what approach makes the most sense for your own circumstances before anything actually changes.
