Savers under 65 will see their tax-free ISA allowance reduced from £20,000 to £12,000 in April 2027, under changes confirmed by former Chancellor Rachel Reeves and now set to be implemented by Labour Prime Minister Andy Burnham. The new rules mean working-age households with savings exceeding £10,000 will face restrictions on their ISA contributions.
What changes for under-65s
From April 2027, individuals under 65 will be restricted to depositing a maximum of £12,000 into cash ISAs. Retirees are exempt from these alterations and will continue to benefit from the current £20,000 threshold. The principal advantage of cash ISAs remains that any interest accrued is exempt from taxation.
Individuals can still allocate the remaining £8,000 towards stocks and shares investments, although returns from these will incur a 22% levy. The charge is designed to stop people using investment ISAs as a workaround to hold cash when the cash ISA limit is cut, according to Martin Lewis's team at Money Saving Expert.
Government confirms tax on investment ISA cash
BBC and ITV star Martin Lewis's team at 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."
Former Chancellor's announcement and industry response
Former Chancellor Ms Reeves previously told MPs: "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."
"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. 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."
Despite being replaced by John Healey, Ms Reeves' changes now look set to be rammed through by Mr Burnham. Savers may need to reassess their savings accounts when the tax-free ISA allowance drops.
