Cash ISA changes from 6 April 2027 will reduce how much most people under 65 can save into a cash ISA each year.
For this age group, the annual cash ISA limit will fall to £12,000. However, the overall ISA allowance will remain at £20,000.
The government will also introduce UK-wide rules to stop savers using other types of ISA to get around the lower cash limit.
Why are the rules changing?
The government wants to stop savers placing the full £20,000 allowance into a non-cash ISA and then leaving the money in cash to earn tax-free interest.
A non-cash ISA means either a stocks and shares ISA or an innovative finance ISA.
The rules will also stop savers from:
- moving funds from a non-cash ISA into a cash ISA
- using a non-cash ISA entirely for cash-like investments
Cash held in a non-cash ISA
From April 2027, a 22% charge will apply to interest earned on cash held in a non-cash ISA.
The same rate will apply to basic, higher and additional-rate taxpayers. Savers will not be able to use the personal savings allowance to reduce the charge.
They will also be unable to move surplus cash into a cash ISA simply to avoid it. Instead, they will need to invest the cash or withdraw it from the ISA.
Cash-like investments
A non-cash ISA cannot consist entirely of cash-like investments.
For this purpose, only money market funds will count as cash-like. These funds usually invest in highly liquid, short-term debt and are generally considered relatively low risk.
The wider ISA investment rules will stay the same. For example, short-dated UK gilts will not count as cash-like investments.
The proposed 100% test may still leave some room to work around the restriction. Holding even a very small amount in another type of investment could mean the portfolio is not entirely cash-like.
Different treatment for savers aged 65 and over
People aged 65 and over will keep the existing £20,000 cash ISA limit.
This will apply from the beginning of the tax year in which they turn 65. From that point, they will no longer face the restriction on transferring funds into a cash ISA.
However, the 22% charge will still apply to interest earned on cash held in a non-cash ISA. The restriction on portfolios made up entirely of cash-like investments will also remain.
Looking ahead
The overall ISA allowance is not changing, but some savers will need to use it differently from April 2027.
Those under 65 may want to review how much they currently hold in cash ISAs. They may also wish to check whether they keep cash within stocks and shares or innovative finance ISAs.
The government’s factsheet explaining the new ISA anti-circumvention rules is available here.