The Treasury has clarified how the new savings rules will work, following the Autumn Budget in 2025. Millions of savers will soon face stricter limits on how much tax-free cash they can deposit each year, and many could face higher tax bills under the changes taking effect from April 2027.
Under current rules, savers receive a total annual ISA allowance of £20,000, which can be used however they wish between different ISAs. That amount can be deposited entirely into cash ISAs, with no requirement to allocate funds to stocks and shares. Any earnings from interest or investment growth within an ISA wrapper remain entirely tax-free.
From April 2027, this framework will change significantly for many savers. The overall tax-free limit remains capped at £20,000, but the maximum cash ISA contribution will be restricted to £12,000. To use the remaining £8,000 of the allowance, funds must be placed into investment-based accounts.
Exemption for over-65s
Savers aged 65 and over will be exempt from the restriction. They will retain the existing rules, allowing them to deposit up to the full £20,000 allowance directly into cash ISAs with no obligation to invest in stocks or shares.
A recent HMRC factsheet set out who will qualify for the exemption and retain the current ISA allowance. The policy document explains: "Individuals aged 65 and over will benefit from a higher Cash ISA limit of £20,000, entitlement to which will apply from the start of the tax year in which an individual turns 65."
This implies that anyone born before April 1963 will retain the full £20,000 Cash ISA allowance, as they will have reached age 65 by some point in the coming 2027/2028 tax year. The financial year runs from April to April.
Why age 65?
The exemption provides welcome flexibility for older savers, but choosing age 65 creates an intriguing mismatch with other major UK financial milestones. These include: the state pension age, which is currently transitioning from 66 to 67 between April 2026 and April 2028, with a further rise to 68 planned for the mid-2040s; and the minimum age to access private pensions, which is currently 55 and rising to 57 in April 2028.
Asked why the age of 65 was chosen, an HM Treasury spokesperson said: "These reforms are designed to encourage more people to benefit from the better long-term returns that investing can offer while continuing to support savers."
The spokesperson added: "We introduced an age carve-out for those aged 65 and over in recognition that people approaching retirement may need greater flexibility in how they manage their savings." The group also said that other changes are intended to improve returns for investors.
Tax rises on savings interest
Another change coming in from April 2027 could hike tax bills. The tax rate paid on savings interest is going up by two percentage points across all tax brackets.
This will mean tax rate increases: for basic rate taxpayers, up from 20 per cent to 22 per cent; for higher rate taxpayers, up from 40 per cent to 42 per cent; and for additional rate taxpayers, up from 45 per cent to 47 per cent.
