HMRC has confirmed new rules for Individual Savings Accounts (ISAs) that will take effect on 6 April 2027, affecting those under the age of 65.
These changes mean that some cash savings will lose their tax-free status. If you hold cash in your investment accounts, you may be affected and – if so – will need to change how you manage your money before the deadline.
From April 2027, the annual cash ISA allowance for savers under 65 will drop to £12,000. The overall £20,000 ISA allowance remains unchanged, meaning the remaining £8,000 can be used in other ISA types like stocks and shares.
Many people keep cash inside a stocks and shares ISA while they decide which shares to buy. From April 2027, if you are under the age of 65, this strategy will face two new restrictions:
The Government is introducing these rules to encourage people to invest their money into the stock market rather than holding cash. Investment platforms have warned that handling this new tax might cause them to lower the interest rates they offer.
The table below shows how the 22% tax will reduce your returns, using an example of £40,000 in cash earning 4.5% interest:
Cash in a Stocks & Shares ISA Current Rules From 6 April 2027
Cash balance £40,000 £40,000
Yearly interest (at 4.5%) £1,800 £1,800
Tax £0 £396
Interest you keep £1,800 £1,404
The rules are different depending on your age. Savers aged 65 and over are completely exempt from these changes. They do not have to pay the 22% tax, they can still move money between accounts freely, and they can keep using the full ISA allowance for cash.
This age gap means families need to be careful when planning their finances together, as the exact same account setup will face different tax rules depending on who owns it.
Importantly, these cash-saving caps only apply to new contributions starting from 6 April 2027. Any money you already have in cash ISAs remains completely protected and tax-free.
If you are under 65 and you do not change your ISA strategy before April 2027, you may automatically start paying tax on your cash interest.
If you have a financial adviser, please speak to them to discuss your options. If you don’t have an IFA, get in touch with the Optimum team and we will be happy to put you in touch with one.
