Millions of UK households will be affected by new bank account rules that lower the annual cash ISA allowance from £20,000 to £12,000 for savers under 65, effective from April 2027. The changes were initially proposed by former Chancellor Rachel Reeves and are now set to proceed under the leadership of Andy Burnham and new Chancellor John Healey.
The reduced cash ISA limit applies only to cash held within a cash ISA. Under-65s will still be able to invest up to an additional £8,000 per year into stocks and shares ISAs, but any interest earned on cash held inside those investment accounts will face a 22% charge from 6 April 2027.
Who is affected by the ISA shake-up?
Individuals under 65 with cash ISAs currently holding more than £10,000 will be particularly impacted, as the new annual limit restricts how much they can deposit each tax year. Pensioners and savers aged 65 and over are protected from the reduction and will retain the full £20,000 cash ISA allowance.
The government argues the change is intended to drive more investment into stocks and shares, which could help boost the broader UK economy. By cutting the tax-free cash ISA limit, officials hope to encourage working-age savers to consider higher-growth investment products rather than cash deposits.
Expert reaction and official guidance
Rob Morgan, chief investment analyst at Charles Stanley Direct, confirmed the details: "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."
Money Saving Expert also issued a statement explaining the new tax obligation: "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."
How the new rules will work
From April 2027, the total amount any individual can subscribe to an ISA in a single tax year will remain £20,000. However, for those under 65, only £12,000 of that can be placed into a cash ISA. The remaining £8,000 can be allocated to stocks and shares ISAs, but any cash interest generated on uninvested funds within those accounts will be subject to the 22% charge.
This charge is designed to close a loophole where savers might have used a stocks and shares ISA as a parking spot for cash, avoiding the reduced cash ISA limit while still benefiting from tax-free interest. The charge applies specifically to interest earned on cash, not to investment gains from stocks or funds.
What savers should do now
With the changes taking effect next April, working-age savers are being advised to make the most of the current £20,000 cash ISA allowance while it remains available. Households with more than £10,000 in cash ISAs may want to review their contribution patterns and consider whether shifting part of their savings into stocks and shares ISAs aligns with their risk tolerance and financial goals.
Financial planners suggest that savers should factor in the new 22% charge when evaluating the net return on any cash held within investment ISAs. For those who rely on cash savings for short-term goals, it may be more beneficial to use the full cash ISA allowance before the reduction, or to explore other savings products that are not affected by the change.
The confirmation of these rules under the Burnham-Healey leadership means savers have a clear timeline to adjust their plans. With April 2027 now set, the coming months offer an opportunity to act before the reduced allowance takes effect.
