Cash or Consequences? The 2027 Cash ISA Changes Explained
Why is the Government changing Cash ISAs?
The Government's stated aim is to encourage long-term investment rather than cash savings, because investing can offer higher returns. According to the Government's most recently published figures, around £353 billion is held in Cash ISAs and around £517 billion in Stocks & Shares ISAs.
Cash remains appropriate for many people. Over longer periods, however, cash returns are generally expected to be lower than investment returns, especially after inflation. The Government may also have secondary aims, such as increasing capital for UK equity markets, encouraging spending, or raising additional tax revenue.
How much can you put in a Cash ISA from April 2027?
From 6 April 2027, the annual Cash ISA limit for people under 65 is due to fall to £12,000. The overall ISA allowance remains £20,000.
Personal circumstances still matter. For many people, a Cash ISA may remain the right choice, and any investment carries the risk of losing capital.
Do you need to move your existing Cash ISA?
No. The changes apply only to new ISA subscriptions, so you shouldn't need to move existing Cash ISA savings into an investment ISA.
Will cash held in a Stocks & Shares ISA be taxed?
Yes. From April 2027, interest on cash held within investment ISAs will be subject to a flat-rate charge of 22%. ISA providers are expected to collect this charge and pay it directly to HMRC.
For investors holding small amounts of cash, or using cash to manage liquidity within a portfolio, the effect may be minor. For anyone planning to move wholesale from a Cash ISA into cash within an investment ISA, the charge would largely remove the benefit.
Can you hold money market funds or other 'cash-like' assets?
The rules also target 'cash-like' assets. If an investment ISA is fully invested in money market funds, which invest in short-term debt securities, it will no longer qualify. ISA managers are expected to help investors either sell the assets and reinvest within the ISA, or remove them from the ISA wrapper.
Not all 'near-cash' assets are excluded: gilts and ETFs remain an option. Government guidance says only money market funds will initially be treated as cash-like assets. That wording suggests further changes are possible once the Government sees how Cash ISA holders respond.
Can you still transfer a Stocks & Shares ISA to a Cash ISA?
Not if you are under 65. From April 2027, people under 65 will no longer be able to transfer an investment ISA into a Cash ISA.
Who will the changes affect most?
It is too early to know the full effect, but a gradual shift towards investment ISAs seems likely. A short-term rise in Cash ISA subscriptions before the deadline would also not be surprising.
The impact on existing ISA wealth may be smaller than the headline figures suggest. On the Government's figures, people over 65 hold the most ISAs and, by far, the largest average balances. Many in this group do not subscribe every year, and they will keep the full £20,000 Cash ISA allowance.
When will the changes become law?
The government has held a technical consultation with ISA providers, but legislation has yet to come before Parliament. The latest Government guidance reaffirms that the rules are intended to apply from April 2027. As ever, politics can change plans, and a new Prime Minister and Chancellor could take a different approach.
-
For people under 65, the Cash ISA limit is due to be £12,000 a year. People aged 65 and over can still put the full £20,000 into a Cash ISA.
-
No. The total annual ISA allowance remains £20,000.
-
From April 2027, interest on cash held in investment ISAs will face a flat-rate charge of 22%, collected by your ISA provider and paid to HMRC.
-
An investment ISA that is fully invested in money market funds will become non-qualifying. Gilts and ETFs remain permitted.
