The government has announced a reduction in the annual cash Isa subscription limit to £12,000 for those under 65, effective from April 2027, as part of broader reforms to encourage investment in stocks and shares. The changes, detailed by HM Revenue and Customs, also include a 22% tax on interest earned on cash held within stocks and shares Isas.
A new first-time buyer Isa will replace the Lifetime Isa, with no upper age limit, reflecting the rising age at which people buy their first home. The Treasury consultation proposes a government bonus of 25% of savings, payable only upon property purchase, and removes the 25% withdrawal penalty that had been criticised for eroding savers' capital.
The property price cap remains at £450,000, unchanged since the Lifetime Isa's launch in 2017, despite rising house prices. The Treasury argues this ensures support targets those most in need, though experts like Rachael Griffin of Quilter note the cap has not been adjusted for inflation.
From April 2027, under-65s will face a £12,000 annual limit on cash Isa deposits, down from the current £20,000 overall Isa allowance. Interest on cash in stocks and shares Isas will be taxed at 22%, and holdings in money market funds will be restricted to prevent circumvention of the cash Isa cap.
Critics, including Rachel Vahey of AJ Bell, warn the reforms add complexity and reduce flexibility, potentially discouraging new investors. The Building Societies Association welcomed the clarity on stocks and shares Isa rules, but others fear the changes entrench a divide between cash and investment accounts.
