The cash ISA allowance will be slashed from £20,000 to £12,000 for savers under 65 from April 2027, a reform confirmed under the new Prime Minister Andy Burnham and Chancellor John Healey. Financial advisers are urging working-age savers to maximise their current allowance before the stricter rules take effect.
What changes and who is affected
The annual cash ISA subscription limit will drop by 40% to £12,000 for those aged under 65, while the overall ISA allowance (including stocks and shares) remains at £20,000. Pensioners aged 65 and over will keep the full £20,000 cash allowance, shielding them from the cut.
Working-age families with ISA balances above £10,000 will feel the most impact, according to financial experts. The policy aims to steer more savings into stocks and shares to boost economic growth, but it comes with a new tax twist.
New 22% tax on cash held in stocks and shares ISAs
From 6 April 2027, any interest earned on cash held inside stocks and shares ISAs will be charged at 22%. This charge is designed to prevent savers from using investment ISAs as a loophole to hold cash after the cash ISA limit is reduced.
Rob Morgan, chief investment analyst at Charles Stanley Direct, explained: "From April 2027, the annual cash ISA allowance will be cut from £20,000 to £12,000 for those under 65, while the overall ISA allowance will remain at £20,000. Older savers will retain the full £20,000 cash allowance."
What savers should do now
Money Saving Expert confirmed the tax change: "Savers who hold cash inside stocks and shares ISAs will be charged 22 per cent on any interest earned on that cash from 6 April 2027, the Government has confirmed."
The charge is intended to stop people using investment ISAs as a workaround when the cash ISA limit is cut. Savers under 65 can still put up to £12,000 in cash ISAs, and the remaining £8,000 of the overall allowance can go into stocks and shares accounts, but any interest on uninvested cash will be taxed.
Impact on savings strategy
For those with substantial cash savings, the reduction means less tax-free shelter for cash. Financial advisers recommend reviewing ISA contributions now, especially for those who have not yet used their 2026/27 allowance. Acting before April 2027 could allow savers to deposit up to £20,000 in cash ISAs under the current rules.
The reform is part of a broader government push to encourage investment in UK equities, but critics warn it could penalise cautious savers who prefer the security of cash. With the new tax on cash within stocks ISAs, even those who diversify may face charges on uninvested funds.
