Savers with cash ISAs are being warned that the annual allowance will be cut from £20,000 to £12,000 from April 2027 for working-age households under 65, according to confirmed government plans. The change, which reduces the tax-free amount that can be deposited into cash ISAs each year, will also see a 22% charge applied to interest earned on cash held inside stocks and shares ISAs from 6 April 2027.
New limits and charges explained
The £20,000 rate currently available to all ISA savers is being reduced to £12,000 for those under 65. Savers in this age group will only be able to put a maximum of £12,000 into cash ISA accounts each tax year. They will still have the option to place the remaining £8,000 into stocks and shares accounts, but any interest earned on that cash portion will be subject to a 22% charge.
The new rules are designed to prevent savers from using investment ISAs as a workaround to hold cash once the cash ISA limit is reduced, as confirmed by the Government. The overall ISA allowance, which covers both cash and stocks and shares, will remain at £20,000.
Pensioners protected from changes
Pensioners are being protected from the shake-up and can continue to take advantage of the full £20,000 cash ISA rate. The new ISA rules will only apply to working-age households under 65.
Rob Morgan, chief investment analyst at Charles Stanley Direct, said: "From April 2027, the annual cash ISA allowance will be cut from £20,000 to £12,000 for those under 65, while the overall ISA allowance will remain at £20,000. Older savers will retain the full £20,000 cash allowance."
Advice for savers ahead of the change
Savers are being urged to prepare for the shake-up and consider how best to manage their finances from next year. Experts also advise households to make the most of the £20,000 limit while it is still available.
Money Saving Expert explained: "Savers who hold cash inside stocks and shares ISAs will be charged 22% on any interest earned on that cash from 6 April 2027, the Government has confirmed. The charge is designed to stop people using investment ISAs as a workaround to hold cash when the cash ISA limit is cut from £20,000 to £12,000 a year for under-65s from the same date."
The change will impact how much savers can earn in tax-free interest, as the major benefit of ISAs is that interest earned on savings is not taxed. With the reduced allowance, savers under 65 will need to plan their contributions carefully to maximise tax-free returns.
