Personal Finance
For a generation, the Individual Savings Account has been the first stop in any sensible financial plan: shelter what you can from the taxman before you let HMRC near the rest. From April 2027, that shelter narrows, and for the first time the rules will treat savers differently depending on their age.
The headline figure is unchanged. The overall annual ISA allowance stays at £20,000, frozen, alongside the £4,000 Lifetime ISA and £9,000 Junior ISA limits, until April 2031. What changes is how you are allowed to spend it.
The cash ISA, capped
From 6 April 2027, savers under 65 will be able to shelter no more than £12,000 a year in a cash ISA, the first cut to the cash allowance since 2017. Anyone aged 65 and over keeps the full £20,000. The carve-out, pressed for by Martin Lewis among others, recognises that older savers approaching retirement want certainty, not equity risk. The entitlement to the full £20,000 begins in the tax year you turn 65, not on your birthday.
The cut bites only on new money. Cash already inside an ISA stays sheltered and continues to earn tax-free interest. The clear implication for under-65s: use this year and next to fill the £20,000 cash allowance while it lasts.
To stop savers from circumventing the cap, under-65s will lose the right to transfer from a stocks and shares ISA or an Innovative Finance ISA to a cash ISA. Transfers the other way remain open.
The investment ISA, taxed on idle cash
The £20,000 stocks and shares allowance survives intact, but the Treasury has moved to stop investors parking cash inside an investment wrapper to harvest tax-free interest. From April 2027, any interest or alternative finance return on cash held within a non-cash ISA will be subject to a flat 22% charge, collected by the ISA manager and paid to HMRC, so individuals need not declare it themselves.
Two points worth flagging. First, this charge applies regardless of age. An over-65 who keeps the full £20,000 cash allowance still pays 22% on interest from cash sitting in their stocks and shares ISA. Second, the sting lands at awkward moments: sell a fund and hold the proceeds in cash before reinvesting, and the interest earned in the interim is caught.
Money market funds escape the charge. The Treasury had warned these vehicles might be too cash-like to belong in an investment ISA, but has now confirmed they qualify for tax-free treatment, provided they do not make up the entire account. Hold 100% in money market funds, and they are reclassified as non-qualifying. These funds, in effect, are low-risk pooled portfolios of government and high-grade corporate debt that track interest rates and will be the only permitted cash-like assets, with managers reporting their market value annually.
The cap sits inside a broader push to build a retail investment culture: a review of risk warnings, the rollout of Targeted Support from April 2026 allowing firms to nudge cash-heavy savers toward investing, and a public education campaign.
The Lifetime ISA, on borrowed time
The Lifetime ISA is being retired, judged to have served too few people well. In its place, the government will offer a First Time Buyer ISA, with a consultation already underway and the new product expected from April 2028.
Until then, the LISA stays open. Existing holders can keep contributing under current rules indefinitely, and new accounts can still be opened. The terms are unchanged: 18-to 50-year-olds can pay in £4,000 a year, the government tops it up with a 25% bonus worth up to £1,000, and the money goes toward a first home or retirement after 60. Withdrawals for any other reason, terminal illness aside, still carry a 25% penalty.
The bottom line
None of this dismantles the case for ISAs, which remain among the most tax-efficient ways to build wealth in Britain. But the message from the Treasury is unmistakable: the room to sit in cash, tax-free, is being deliberately reduced, and savers who want to keep their full shelter will increasingly have to take on investment risk to do it.
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