Millions of savers across the UK face significant changes to their tax-free allowances following the publication of final policy details regarding the Individual Savings Account (ISA) system. HM Revenue & Customs (HMRC) has confirmed a new two-tier structure for Cash ISAs and a tax on uninvested cash held in investment accounts, set to take effect from 6 April 2027.
The update, as confirmed by GOV.UK, marks the finalisation of changes to the ISA system. The move is designed to encourage retail investors to shift away from cash deposits toward UK equities to support long-term economic returns.
New tiered limits for Cash ISAs
From April 2027, the annual subscription limit for Cash ISAs will be reduced for younger savers. Individuals aged under 65 will see their Cash ISA limit cut from the current £20,000 to £12,000 per tax year.
However, the government has introduced a protection for older savers. Those aged 65 and over will retain the full £20,000 annual Cash ISA subscription limit. This creates a two-tier system where age determines how much can be shielded from tax in a traditional cash-based savings account.
It is important to note that the overall annual ISA subscription limit—the total amount a person can save across all types of ISA—remains frozen at £20,000 for everyone until at least April 2031.
The ‘Cash Trap’ tax on investment accounts
To prevent savers from using investment accounts as a workaround for the reduced cash limits, the government is introducing strict anti-circumvention measures. From April 2027, a flat-rate 22% charge will be applied to any interest earned on cash held within non-cash ISAs, such as Stocks & Shares ISAs and Innovative Finance ISAs.
Previously, many investors held significant cash balances within these accounts while waiting for market opportunities, often earning tax-free interest in the interim. Under the new rules, this interest will be subject to the 22% levy, effectively removing the tax advantage of holding uninvested cash in a portfolio.
Further restrictions will also apply to the movement of funds. For those under the age of 65, transfers from Stocks & Shares or Innovative Finance ISAs into Cash ISAs will be restricted starting in the 2027/28 tax year.
What remains unchanged?
While Cash ISAs for younger adults are seeing a reduction, other specialised ISA products will remain at their current levels for the time being:
- Junior ISAs (JISA): The annual limit remains at £9,000.
- Lifetime ISAs (LISA): The limit remains at £4,000.
The 2026/27 tax year represents the final opportunity for savers under 65 to deposit the full £20,000 allowance into a Cash ISA before the new tiered restrictions and the 22% interest charge on investment cash are implemented.
