The ISA rules are set to change from 6 April 2027, and the Government has published guidance about what this will mean for savers.
Will you be under 65 when the new rules commence?
If so, your overall annual ISA allowance will remain at £20,000.
- You’ll be restricted to paying a maximum of £12,000 into a Cash ISA each tax year.
- You’ll still be able to use your full £20,000 ISA allowance for Stocks and Shares ISAs each tax year.
- You can save up to £20,000 each tax year across Cash ISAs and Stocks and Shares ISAs combined – for example, £12,000 in a Cash ISA and £8,000 in a Stocks and Shares ISA.
- You won’t be able to transfer money from a Stocks and Shares ISA or Innovative Finance ISA into a Cash ISA. However, you can still transfer money the other way. This restriction is lifted at the start of the tax year in which you turn 65.
Importantly, you can still save up to £20,000 in a Cash ISA this tax year, before the new rules come into effect.
It’s the tax year in which you turn 65 that matters, rather than the date of your birthday. For example, if your 65th birthday is 1 April 2028, you’ll qualify for the higher Cash ISA allowance from 6 April 2027 – the start of the 2027/28 tax year.
What if you’re 65 or over when the new rules commence?
Your Cash ISA allowance will remain at £20,000. You can continue using Cash ISAs just as you do today.
What about the 22% interest charge on ISAs that I’ve heard about?
Firstly, this doesn’t apply to money held in a Cash ISA.
To prevent people from getting around the new, lower Cash ISA limit for under-65s, the new rules will:
- Introduce a 22% tax charge on interest received by the ISA manager on cash holdings held within Stocks and Shares and Innovative Finance ISAs. This tax will be paid by the ISA manager to HMRC. The charge won’t end when you turn 65.
- Prevent a person from holding 100% of their Stocks and Shares ISA in cash-like assets, which will initially only consist of Money Market Funds. This restriction also won’t end when you turn 65.
It is important to note that, at the moment, the rules only refer to holding 100% in a Money Market Fund. This means it could technically be possible to hold 99% in a Money Market Fund and 1% in an equity fund. However, it is anticipated that the Government will close this loophole before the new rules come into effect.
What should you do next?
Changes to ISA rules can affect how you choose to save and invest, but the right approach will depend on your individual circumstances, goals and wider financial plan. With the new rules due to take effect from April 2027, now is a good time to review how you are using your ISA allowances and consider whether any action may be beneficial before the changes take effect.
If you’d like to understand what the new ISA rules could mean for you, speak to the team at Fogwill & Jones. We can review your current arrangements, talk through your options and help ensure your savings and investments continue to support your longer-term financial goals.