ISA Changes from April 2027: What Savers Need to Know
The Government has confirmed significant changes to Individual Savings Accounts (ISAs) that will come into effect from 6 April 2027. The reforms are designed to encourage more people to invest for the longer term, while continuing to provide tax-efficient savings opportunities.
What is changing?
From the 2027/28 tax year:
- The Cash ISA allowance for individuals under 65 will reduce from £20,000 to £12,000.
- The overall annual ISA allowance will remain at £20,000.
- The Stocks & Shares ISA, Innovative Finance ISA and Lifetime ISA limits will remain unchanged.
- Individuals aged 65 and over will continue to benefit from a £20,000 Cash ISA allowance.
Why is the Government making these changes?
The Government believes that encouraging more investment into Stocks & Shares ISAs and other investment-based ISAs could help savers achieve better long-term returns than holding large amounts of cash.
To support this objective, new rules will prevent investors from using Stocks & Shares ISAs simply as an alternative home for cash.
New rules for non-Cash ISAs
Several new measures will accompany the lower Cash ISA allowance.
22% charge on interest held as cash
Investors will still be able to hold cash within a Stocks & Shares or Innovative Finance ISA, for example while waiting to invest. However, any interest earned on cash balances will be subject to a 22% charge, which will be paid directly by the ISA provider to HMRC.
This is intended to discourage investors from leaving substantial cash balances in investment ISAs for extended periods.
Restrictions on cash-like investments
From April 2027, an ISA invested entirely in money market funds will no longer qualify as a Stocks & Shares or Innovative Finance ISA.
Money market funds are considered “cash-like” investments under the new rules. However, they can still form part of a diversified investment portfolio, provided they do not make up the entire ISA.
Importantly, traditional investments such as:
- individual shares
- investment funds
- investment trusts
- exchange traded funds (ETFs)
- corporate bonds
- UK Government bonds (gilts)
will not be treated as cash-like investments.
Changes to ISA transfers
Under the new rules:
- Transfers from a Cash ISA to a Stocks & Shares ISA will continue to be allowed.
- Transfers from a Stocks & Shares or Innovative Finance ISA into a Cash ISA will no longer be permitted for those under age 65.
This restriction will not apply once an individual becomes entitled to the higher Cash ISA allowance at age 65.
What does this mean for savers?
From April 2027:
- Individuals under 65 will be able to save up to £12,000 each tax year in a Cash ISA.
- The overall ISA allowance remains £20,000, allowing up to £8,000 to be invested in Stocks & Shares or other qualifying ISAs if the Cash ISA allowance is fully used.
- Investors can continue to hold temporary cash balances within investment ISAs, although interest earned will be subject to the new 22% charge.
- Diversified portfolios that include some money market funds will continue to qualify.
Looking ahead
Draft legislation is expected to be published shortly for consultation with the financial services industry, with the final regulations due later this year. The new rules are scheduled to take effect on 6 April 2027.
If you currently make full use of your ISA allowance, or are considering your savings and investment strategy for the future, these changes may affect how you use your annual tax-efficient allowances. If you would like to discuss how the reforms could impact your financial planning, please get in touch with our team.
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