ISA reform means changes for savers
From 6 April 2027, anyone aged under 65 will only be able to save a maximum of £12,000 into cash individual savings accounts (ISAs) each tax year. The overall ISA limit will, however, remain at £20,000, with new rules introduced to minimise the opportunity for the lower cash ISA limit to be circumvented.
Aim of the new rules
The new rules are being introduced to prevent a saver from subscribing up to £20,000:
In cash into a non-cash ISA and leaving the cash there long-term, earning tax-free interest.
In a non-cash ISA and then transferring those funds to a cash ISA.
To a non-cash ISA and then using the funds to purchase cash-like investments.
A non-cash ISA means a stocks and shares ISA or an innovative finance ISA.
What this means
There will be a 22% charge on any interest paid on cash held within a non-cash ISA. This rate applies even if a saver is a higher or additional rate taxpayer. The personal savings allowance cannot be used to mitigate the charge.
The transfer restriction means surplus cash cannot be moved to a cash ISA to escape the 22% charge. To avoid the charge, cash will have to be invested or withdrawn from the ISA.
A non-cash ISA portfolio made up of 100% cash-like investments will not be permitted:
Only money market funds (these are low risk, investing in highly liquid, short-term debt securities) will be treated as a cash-like investment.
The existing ISA investment rules are unchanged, so investments such as short-dated UK gilts will not be treated as cash-like investments.
65 and over
Savers aged 65 and over will continue to benefit from the current cash ISA limit of £20,000. Entitlement will apply from the start of the tax year in which a saver reaches 65.
From that point, the transfer restriction will no longer apply. The charge on interest earned on cash held in a non-cash ISA and the prohibition on 100% cash-like investments will, however, remain in place.
The government’s factsheet on the ISA anti-circumvention rules is available here.
Contact us
Please contact us to find out how the above applies in your circumstances and how we can help you.
Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.