The cash ISA annual limit will drop to £12,000 for everyone under 65 from April 2027, while over-65s and state pensioners will keep the full £20,000 cash allowance, under reforms set to continue under Prime Minister Andy Burnham's government.
The changes were originally announced by former Chancellor Rachel Reeves, who was replaced by Makerfield MP Mr Burnham when he succeeded Sir Keir Starmer. Chancellor John Healey now holds the No11 role, with the reforms progressing under the new leadership.
Over-65s retain full cash ISA allowance
The exemption covers all state pensioners (age 66, rising to 67) and those aged 65 and over who have not yet reached pension age, allowing them to keep the full cash ISA allowance. The overall ISA allowance remains at £20,000 for all savers, but the cash component for under-65s is reduced.
Ms Reeves previously told MPs about the shake-up. She said: "From April 2027, I will reform our Isa system, keeping the full £20,000 allowance while designating £8,000 of it exclusively for investment, with over-65s retaining the full cash allowance."
Banks to guide savers under new rules
Ms Reeves added: "And thanks to our changes to financial advice and guidance, banks will be able to guide savers to better choices for their hard-earned money." She also noted that "over 50% of the Isa market – including Hargreaves Lansdown, HSBC, Lloyds, Vanguard and Barclays – have signed up to launch new online hubs to help people invest here in Britain."
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."
New tax charge on cash in investment ISAs
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 April 6, 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 reforms take effect from April 2027, with the 22% tax charge applying to cash held in stocks and shares ISAs from April 6, 2027, for all savers regardless of age.
