Chancellor Rachel Reeves has confirmed a major shake-up of cash ISA rules, set to take effect in April 2027, which will significantly impact working-age savers. The tax-free cash ISA limit will be reduced from £20,000 to £12,000, and a new 22% charge will apply to interest earned on stocks and shares ISAs for those under 65.
Key Changes for Savers Under 65
Under the new rules, savers below the age of 65 will only be able to deposit up to £12,000 into a cash ISA tax-free each year. The remaining £8,000 of the current £20,000 allowance can be placed into a stocks and shares ISA, but any interest earned on that account will be subject to a 22% charge. This effectively reduces the tax advantage for non-cash ISAs.
Pensioners aged 65 and over are exempt from these changes and will continue to enjoy the full £20,000 tax-free limit across all ISA types. This distinction has drawn criticism from some who view it as unfair to younger savers.
Government's Rationale
The Treasury stated that the shake-up is designed to encourage more investment in stocks and shares, aiming to boost the UK economy. A spokesperson said, "These changes will incentivise working-age households to invest in productive assets, supporting economic growth."
Martin Lewis' Money Saving Expert website explained the implication: "From April 2027, you will be taxed on interest earned on cash held in a non-cash ISA, such as a stocks and shares ISA or innovative finance ISA. The Government says this is to prevent people from using non-cash ISAs like cash ISAs once the cash ISA limit is reduced."
Advice for Savers
Financial experts advise working-age savers to maximise their £20,000 allowance before the new rules come into force. For those under 65, careful planning is needed to balance cash and investment ISAs while accounting for the new 22% charge. The changes are expected to affect millions of savers across the UK.
