Money saving expert Martin Lewis has provided crucial clarity on significant changes to Cash Individual Savings Accounts (ISAs) set to take effect in April 2027.
What are the new ISA rules from 2027?
The reforms were confirmed by Chancellor Rachel Reeves in the recent Autumn Budget. The headline change is a major reduction in the amount you can save tax-free into a Cash ISA each year.
The annual tax-free allowance for Cash ISAs will be cut from £20,000 to £12,000. The remaining £8,000 of the overall ISA allowance will be specifically allocated to Stocks and Shares ISAs. The government stated this move aims to encourage more investment in British businesses.
Who is affected and how will it work?
Martin Lewis was quick to point out an important exemption. Anyone aged 65 or over will not be impacted and will retain the full £20,000 allowance for Cash ISAs.
For those under 65, the system from April 2027 will function with a single, shared allowance. "The ISA limit is £20,000 and will remain at £20,000 even for under-65s after 2027," Lewis explained. "You can put £20,000 in a shares ISA, you could also choose to put some in cash."
He elaborated that the two types will now compete for space within the £20,000 cap. "Let’s say you put £1,000 in cash, well that reduces the amount you can put in shares by £1,000, because it still has the total of £20,000."
The maximum that can be placed into a Cash ISA will be £12,000. Lewis confirmed: "You could have £12,000 in cash, and £8,000 in shares. You don’t have to put the money in shares. You could just, from that point, have £12,000 in cash." He also stressed a key detail: "The key to this rule is, it only impacts new money paid in."
Potential loophole firmly closed by Treasury
During his explanation, a viewer named Jane proposed a clever workaround. She asked if one could open both types of ISA, using the full £8,000 for stocks and shares and £12,000 for cash, and then transfer the stocks and shares ISA into the cash ISA within the same tax year.
Martin Lewis responded that while the idea was smart, the Treasury has already anticipated and blocked this tactic. "Unfortunately, the Treasury is just as clever," he said, noting that current consultations state that from 2027, transfers from a Stocks and Shares ISA to a Cash ISA will be prohibited. This prevents savers from effectively circumventing the new cash limit.
The changes, while still two years away, require savers and investors to start considering their long-term financial planning, especially for those who heavily utilise Cash ISAs for their tax-free benefits.
