The Government has confirmed that from April 2027, the annual cash ISA allowance for under-65s will be cut from £20,000 to £12,000, and any interest earned on cash held inside stocks and shares ISAs will be subject to a 22% charge. The changes, first announced by Rachel Reeves, are designed to prevent savers from using investment ISAs as a workaround to hold cash beyond the reduced limit.
New rules target working-age savers
Households with more than £10,000 in savings may need to reassess where they keep their money, as the reduced allowance will limit the amount of interest they can earn tax-free from cash ISAs. The 22% charge is specifically aimed at stopping savvy savers from circumventing the new rules by parking cash in stocks and shares ISAs.
The changes apply only to working-aged households under 65. Pensioners are protected and will continue to enjoy the existing £20,000 annual cash ISA limit, providing some relief for older savers.
Experts and Money Saving Expert weigh in
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."
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."
Impact on savers and next steps
For those under 65, the reduction means they can only deposit up to £12,000 per tax year into a cash ISA, down from the current £20,000. The remaining £8,000 of the overall ISA allowance can be placed into a stocks and shares ISA, but any interest earned on cash held in such accounts will incur the 22% charge from April 2027.
Savers with over £10,000 in savings will need to weigh up the best way to store their cash, considering the reduced tax-free allowance and the new charge on cash interest in investment ISAs. The changes are set to come into force next spring, giving households time to plan their savings strategies accordingly.
