Last updated: December 2025.
What is changing with Cash ISAs from April 2027?
The November 2025 Budget announced three linked changes affecting UK savers:
- Cash ISA annual allowance reduced from £20,000 to £12,000 for most savers, with effect from the 2027–28 tax year
- Over-65s keep the full £20,000 Cash ISA allowance, they are exempt from the cut
- Savings income tax rates rise by 2 percentage points across all bands from April 2027, affecting interest earned on cash held outside ISAs
The overall £20,000 annual ISA subscription limit is unchanged. You can still pay £20,000 a year into ISAs in total, but for under-65s, only £12,000 of that can go into a Cash ISA. The remaining £8,000 must go into Stocks and Shares ISAs, Innovative Finance ISAs, or other qualifying wrappers.
At a glance
| Element | 2024–25 to 2026–27 | From April 2027 |
|---|---|---|
| Overall ISA allowance | £20,000 | £20,000 (unchanged) |
| Cash ISA allowance (under 65) | £20,000 | £12,000 |
| Cash ISA allowance (65 and over) | £20,000 | £20,000 (unchanged) |
| Stocks & Shares ISA | £20,000 (within overall limit) | £20,000 (within overall limit) |
| Lifetime ISA | £4,000 (within overall limit) | Under reform, 2026 announcement expected |
| Tax rate on savings interest (basic rate band) | 20% | 22% |
| Tax rate on savings interest (higher rate band) | 40% | 42% |
| Tax rate on savings interest (additional rate) | 45% | 47% |
Why is the Government making this change?
The Treasury's stated goal is to encourage UK savers to move money out of low-yielding cash accounts and into investments, particularly UK equities, to support long-term wealth creation and capital flows into the UK stock market.
The combination of a smaller Cash ISA allowance and higher tax on interest outside ISAs creates a clear nudge: cash held in large balances becomes less tax-efficient, and the relative attractiveness of Stocks and Shares ISAs (and other investment wrappers) increases.
Cash ISAs have historically been popular but generated lower returns than diversified equity portfolios over long periods. Around 18 million people hold Cash ISAs in the UK; this change affects most of them.
How much does this actually cost a typical saver?
The financial impact depends on three things: how much you currently put into Cash ISAs, the interest rate you earn, and your marginal tax band.
A worked example, a 50-year-old basic-rate taxpayer who normally puts the full £20,000 each year into a Cash ISA earning 4.5%:
- Now: £20,000 in Cash ISA, interest tax-free → £900/year tax-free interest
- From 2027: £12,000 in Cash ISA (£540 tax-free), £8,000 either in Stocks & Shares ISA (returns variable, tax-free) or in a regular savings account
- If the £8,000 goes into a regular savings account earning 4.5%, that is £360 of interest. After the personal savings allowance (£1,000 for basic-rate, £500 for higher-rate, £0 for additional-rate), the rest is taxed at the new 22% rate, a tax bill of around £80
- Cumulative annual cost: typically £80–£200 in additional tax, plus the opportunity cost of returns foregone if the £8,000 is left in cash rather than invested
For higher-rate and additional-rate taxpayers, the impact is proportionally larger because more interest falls into taxable bands.
What is happening to the Lifetime ISA (LISA)?
The Government has announced plans to reform the Lifetime ISA, with detailed proposals expected in 2026. The stated intention is to simplify the product; no specific changes have yet been confirmed.
The Lifetime ISA currently allows under-40s to save up to £4,000 a year for a first home or for retirement, with a 25% Government bonus. Withdrawals for other purposes incur a 25% penalty. Reform may address that penalty, the age limits, or the bonus structure, but until details are published, savers should continue to plan around the current rules.
What should savers do now?
The change does not take effect until April 2027, giving 16+ months to plan. Practical responses include:
1. Use your current £20,000 Cash ISA allowance fully where appropriate
For the 2025–26 and 2026–27 tax years, the £20,000 Cash ISA limit still applies. Anything sheltered now stays sheltered indefinitely.
2. Review your overall savings mix
Many UK savers hold significantly more in cash than they need. A planning rule-of-thumb: keep 3–6 months of essential expenses in instant-access cash; consider investing additional sums for goals more than five years away.
3. Consider Stocks and Shares ISAs sooner
If you have avoided investment ISAs because Cash ISAs gave full tax-free protection up to £20,000, the new rules effectively pull more cash into the investment ISA. Reviewing risk appetite and time horizon early is sensible.
4. For over-65s, your £20,000 Cash ISA allowance is preserved
This is a meaningful exemption. Older savers can continue with the same approach, though the higher tax on interest outside ISAs still affects any non-ISA cash holdings.
5. Do not sit on large cash balances
With savings interest tax rates rising in 2027, cash above your personal savings allowance and ISA allowance is being taxed harder. This is a structural change, not a temporary one.
Are Stocks and Shares ISAs a like-for-like replacement?
Not exactly, they sit on a different point of the risk spectrum. Stocks and Shares ISAs invest your money in shares, bonds, or funds. Returns are variable, the value can fall as well as rise, and short-term volatility can be significant. Over 10+ year periods, equities have historically delivered higher returns than cash in the UK, but with notable interim drawdowns.
If you have never used a Stocks and Shares ISA, taking advice before committing larger sums is worthwhile, particularly around your time horizon, your risk tolerance, the mix of funds inside the ISA, and the costs and platform charges involved.
Frequently asked questions
Will I lose money already in my Cash ISA?
No. Existing Cash ISA balances are unaffected. The change applies only to new annual contributions from April 2027 onwards.
Can I still transfer between Cash ISAs and Stocks and Shares ISAs?
Yes, ISA transfer rules are unchanged. You can transfer existing balances between ISA types without using up your annual allowance.
Do Junior ISAs change?
No specific Junior ISA changes have been announced in this package. Junior ISA limits remain as previously set.
Why are over-65s exempt?
The Government's position is that older savers rely more heavily on cash for income and short-term security, and should not be pushed into equity risk to maintain tax-efficient saving.
Could the cut be reversed?
ISAs have been a political football for several years. Future Budgets could change the rules again. Plan against announced changes, but build flexibility into your savings approach.