New rules confirmed under Prime Minister Andy Burnham and Chancellor John Healey will cut the tax-free cash ISA allowance for working-age savers next year. The previously announced reduction, first set out by former Chancellor Rachel Reeves, will still come into force from April 2027.
Under the changes, savers aged under 65 will only be able to put up to £12,000 into cash ISAs, down from the current £20,000 limit. Pensioners will be protected from the reduction, meaning the impact will fall on working-age households.
Who is affected
The change will affect households with cash ISAs that currently hold more than £10,000. Working-age savers are being advised to make the most of the current rate before the new rules come into force next April.
Those affected will still be able to put the remaining £8,000 of their annual ISA allowance into stocks and shares accounts. However, any interest earned on cash held inside those accounts will be hit with a 22% charge.
Reason for the change
The aim is to boost the economy by encouraging more investment in stocks and shares rather than cash savings.
Expert reaction
Rob Morgan, chief investment analyst at Charles Stanley Direct, said: "From April 2027, the annual cash ISA allowance will be cut from £20,000 to £12,000 for those under 65, while the overall ISA allowance will remain at £20,000."
"Older savers will retain the full £20,000 cash allowance."
Money Saving Expert explained: "Savers who hold cash inside stocks and shares ISAs will be charged 22% on any interest earned on that cash from 6 April 2027, the Government has confirmed."
"The charge is designed to stop people using investment ISAs as a workaround to hold cash when the cash ISA limit is cut from £20,000 to £12,000 a year for under-65s from the same date."
