Upcoming changes to Cash ISAs: The important tax rules to be aware of

Individual Savings Accounts (ISAs) are one of the most widely used tax-efficient savings and investment accounts in the UK.

You could use a Cash ISA to earn tax-free interest on your savings, or a Stocks and Shares ISA to invest your wealth without paying Capital Gains Tax (CGT) or Dividend Tax on returns.

As of 2026/27, you can contribute up to £20,000 across all of your ISA accounts each tax year, and you can decide how to divide this allowance.

However, from April 2027, this is set to change, as the government has confirmed that the Cash ISA allowance for savers under the age of 65 will fall to £12,000.

The overall ISA allowance will stay at £20,000, meaning you could still use the remaining £8,000 in other forms of ISA.

Meanwhile, if you’re 65 or over, the Cash ISA allowance will remain at £20,000 from the start of the tax year in which you turn 65.

While this might seem straightforward at first glance, the government has also confirmed several “anti-circumvention” rules designed to stop you from using non-Cash ISAs to bypass the new limits.

Read on to learn how the rules are changing and what they could mean for your savings and investments.

Cash held in a Stocks and Shares ISA could face a 22% charge

Reducing the Cash ISA allowance for under-65s while keeping the overall ISA allowance at £20,000 means the government is effectively reserving part of the allowance for investment ISAs.

Yet, without further rule changes, it might have been possible to work around the reduced limit.

For instance, you could have paid £20,000 into a Stocks and Shares ISA and simply left the money sitting as cash.

Or, you could have paid money into a Stocks and Shares ISA and later transferred it into a Cash ISA.

To prevent this, the government has stated that any interest earned on cash held within a non-Cash ISA will be subject to a flat 22% charge.

This will be paid directly to HMRC by your ISA manager, rather than declared by you personally.

As of 2026/27, the Personal Savings Allowance (PSA) allows basic-rate taxpayers to earn up to £1,000 of savings interest without incurring tax, or £500 for higher-rate taxpayers. Additional-rate taxpayers don’t benefit from the allowance.

Since the interest is generated inside an ISA, the PSA may not reduce the 22% charge.

So, if you hold a significant amount of cash inside a Stocks and Shares ISA for a long period, you may receive less interest than you expected.

A portfolio made entirely of cash-like assets may be subject to tax

It’s also vital to note that the government addressed the use of “cash-like” investments within non-Cash ISAs.

From April 2027, money market funds will be treated as cash-like assets. These are typically lower-risk, higher-liquidity funds investing in short-term debt securities that some investors may use as a temporary home for cash or as part of their wider portfolio.

Under the new rules, you will still be able to hold money market funds in a Stocks and Shares ISA if they only form part of your portfolio.

However, if your portfolio is made entirely of cash-like assets, it could be treated as non-qualifying, and any returns may be subject to tax.

The government will also restrict transfers between ISA accounts

The government has also confirmed that transfers from non-Cash ISAs into Cash ISAs won’t be permitted from April 2027.

This is designed to stop you from paying the full £20,000 into your Stocks and Shares ISA, then later moving the funds into a Cash ISA, effectively bypassing the £12,000 limit.

Just remember that transfers from Cash ISAs into non-Cash ISAs will still be allowed, which could be helpful if you decide to move some of your cash savings into investments in the future.

If you’re over the age of 65, the transfer restriction will be lifted from the start of the tax year in which you reach that age.

Still, even if you’re over 65, the 22% charge on interest earned from cash in a non-Cash ISA could apply, as will the rule preventing a non-Cash ISA from being made up entirely of cash-like assets.

The new ISA rules could mean you have to assess how you use your tax-efficient accounts

The upcoming changes don’t mean ISAs will stop being valuable, but the rules could affect how you use the accounts.

For instance, you may want to review:

How much cash you hold in a Stocks and Shares ISA
Whether you’re holding that cash temporarily or over the long term
How you plan to use your ISA allowance before and after April 2027
Whether you need to make the most of the current Cash ISA rules before they change.

It may also be prudent to consider whether your money is in the right place for your goals.

Cash can be practical for short-term spending and emergencies, but over the long term, inflation could erode its purchasing power in real terms if the interest you receive doesn’t keep pace with rising prices.

Investing may offer more competitive growth, but it also involves risk, and the value of your wealth can rise as well as fall.

The most suitable approach will depend on your time frame, tolerance for risk, and goals. So, it may be worth working with a financial planner.

Get in touch

We can help you review your ISAs and understand how the new rules could affect you. This may mean you’re able to make better use of your allowances and ensure your savings and investments are aligned with your long-term objectives.

Please contact us at hello@ardentuk.com or call or WhatsApp us on 01904 655330. As an award-winning financial advice company with advisers included in the 2025 VouchedFor Top Rated guide, we can assure you that we’re a bona fide company providing excellent advice and high-quality service.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.