Cash ISA limits are being slashed for under-65s from April 2027, with the annual allowance halved to £12,000 as part of a government push to steer savers towards investing rather than parking cash. Chancellor Rachel Reeves confirmed the reforms in the 2025 Autumn Budget, setting out a series of changes that will fundamentally alter how individuals use Individual Savings Accounts.
New cash ISA limit
From April 2027, savers under the age of 65 will be able to deposit a maximum of £12,000 into a cash ISA each tax year, down from the current £20,000. However, the overall annual ISA allowance remains untouched at £20,000, meaning that anyone who wants to use the full entitlement will need to allocate at least £8,000 to a stocks and shares ISA, an innovative finance ISA or a lifetime ISA. The current tax year, 2026/27, is the last full year under the existing rules, so under-65s can still deposit up to £20,000 into a cash ISA until 5 April 2027.
22% charge on cash in investment ISAs
A new 22 per cent flat-rate charge will apply to any interest earned on cash held within stocks and shares ISAs and innovative finance ISAs. The government says the measure is designed to prevent investors from using these accounts as a workaround for the reduced cash ISA limit — essentially a tax on “parking” cash in accounts meant for investment. Investment platforms including Bestinvest, AJ Bell and interactive investor currently pay interest on cash held in stocks and shares ISAs, and that interest will now be subject to the charge. Individuals will not need to declare the interest to HMRC; the charge will be deducted and paid directly by the brokers.
Cash-like assets, such as money market funds, will still be permitted within stocks and shares ISAs, but only as part of a diversified portfolio. If money market funds make up 100 per cent of the account, the ISA may be deemed a non-qualifying investment. Shares, funds, investment trusts, exchange-traded funds, bonds and gilts will not be treated as cash-like assets under the new rules.
How the rules differ for over-65s
Savers aged 65 and over will retain the full £20,000 cash ISA allowance, a significant concession that means the age threshold effectively creates two tiers of ISA access. However, the 22 per cent charge on interest earned on cash held within stocks and shares ISAs will apply to them as well. The prohibition on holding a stocks and shares ISA made up entirely of money market funds also remains in place for the over-65s.
The most notable difference concerns transfers. Under-65s will be banned from transferring money from stocks and shares ISAs or innovative finance ISAs into cash ISAs from April 2027. By contrast, those aged 65 and over will be allowed to make such transfers. They can also move money from a cash ISA into a stocks and shares ISA if they wish — a rule that applies to all age groups. Jason Hollands, managing director at wealth management firm Evelyn Partners, welcomed the transfer allowance for older savers, noting it would enable them “to free up more liquid cash and avoid paying tax on cash held within stocks and shares ISAs”.
Anti-circumvention rules explained
The government’s anti-circumvention measures are the centrepiece of the reforms and carry the most detail. The 22 per cent charge, as outlined, targets interest on cash held in investment ISAs. It is paid by brokers directly to HMRC, removing the need for individuals to report it. The prohibition on 100 per cent money market fund holdings applies to all ages, ensuring that such accounts cannot be used as pure cash substitutes.
For under-65s, the transfer restrictions are absolute: no movement from stocks and shares ISAs or innovative finance ISAs into cash ISAs. This closes a loophole that could otherwise allow savers to shift investment proceeds back into tax-free cash accounts. Transfers in the opposite direction — from cash ISAs to stocks and shares ISAs — remain permitted. Investors aged 65 and over face no such restriction and can freely transfer between the two types.
The government’s rationale, as stated by a HM Treasury spokesperson, is that “parking cash long term in a non-cash ISA to earn tax-free interest isn’t investing. These changes will push more people towards investments that actually grow their money, and industry leaders including Nationwide and the Building Societies Association back us on this.” The Building Societies Association has welcomed the clarity provided by the government while noting that building societies will need to update their systems to accommodate the new rules.
Not all reactions have been positive. Jason Hollands described the reforms as adding an “unneeded layer of complexity for all investors” and said they “undermine the tax-free promise”. He added: “We’ve never had different rules applying to different people depending on age.”
Separately, ISA allowances have been frozen until 2031, meaning the £20,000 limit set in 2017 will remain unchanged for 14 years — a figure that if adjusted for inflation would be significantly higher today. A consultation is also planned for early 2026 to explore replacing the Lifetime ISA with a simpler product for first-time buyers, though existing LISAs are expected to remain available during a transition period.
From April 2027, the income tax on savings interest earned outside ISAs will also rise: to 22 per cent for basic-rate taxpayers, 42 per cent for higher-rate taxpayers, and 47 per cent for additional-rate taxpayers — a further incentive for savers to consider the revised ISA landscape carefully.
