The government has confirmed that from April 2027, the annual cash ISA allowance will be cut from £20,000 to £12,000 for savers under 65, while a new 22% charge will apply to interest earned on cash held inside stocks and shares ISAs. The changes, announced as part of a major shake-up of cash ISA rules, will affect millions of working-age savers, particularly those with more than £10,000 in savings.
What the new rules mean for savers
Under the new rules, working-age savers will only be able to deposit up to £12,000 per year into cash ISAs, down from the current £20,000 limit. This reduction means savers will not be able to earn as much tax-free interest on their cash savings. The overall ISA allowance, however, will remain at £20,000, allowing savers to put the remaining £8,000 into stocks and shares accounts instead.
Interest earned on cash held within stocks and shares ISAs will be subject to a 22% charge from April 6, 2027. According to Money Saving Expert, the charge is designed to stop people using investment ISAs as a workaround to hold cash when the cash ISA limit is cut. Experts say the tax is in place to prevent savers from exploiting a loophole.
Who is affected and who is protected
The new ISA rules will only apply to working-age households under 65. Pensioners are being protected and can continue to take advantage of the £20,000 cash ISA rate. This means older savers will retain the full £20,000 cash allowance, according to Rob Morgan, chief investment analyst at Charles Stanley Direct.
Morgan 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."
Impact on households with savings
The changes will leave households with over £10,000 in savings considering how best to store their cash. The reduction in the cash ISA allowance and the new 22% charge on cash interest in stocks and shares ISAs mean that savers may need to reassess their savings strategies ahead of the April 2027 implementation date.
The announcement follows other recent changes affecting savers, including a rule confirmed by Andy Burnham for 13 million state pensioners and a cut in payments for 4 million state pensioners born before 1960. The new ISA rules are part of a broader effort to adjust savings and investment incentives, with the government aiming to close loopholes while protecting older savers.
