A 22% levy on interest earned from cash held in stocks and shares Individual Savings Accounts (Isas) is set to be introduced to prevent savers circumventing new cash Isa limit rules from 2027. The measure was announced in the autumn budget 2025 and will take effect from April 2027.
New cash Isa allowance limits
From April 2027, the annual cash Isa allowance will be reduced to £12,000, while the limit for stocks and shares and innovative finance Isas (non-cash Isas) will remain at £20,000. The cash Isa allowance for people aged 65 and over will stay at £20,000. HM Revenue and Customs (HMRC) has published a factsheet outlining rules to ensure the policy achieves its objective.
Rules to prevent avoidance
HMRC said rules will be introduced to prevent people subscribing up to £20,000 cash in a non-cash Isa and leaving it there long-term, earning tax-free interest. The rules also aim to stop people subscribing £20,000 to a non-cash Isa and then transferring those funds to a cash Isa, or subscribing £20,000 to a non-cash Isa and using the funds to purchase “wholly cash-like” investments. Among the changes, a flat rate charge of 22% will be applied on interest or alternative finance return paid on cash held within a non-cash Isa.
Industry reactions
Simon Harrington, head of public affairs at PIMFA (Personal Investment Management and Financial Advice Association), expressed scepticism: “We remain sceptical that these changes will have any real effect on consumer investment behaviour and fear they will do the opposite. Far from encouraging take up, they risk making the stocks and shares Isa, the very wrapper the Government wants people to use, less attractive.”
Tom Riley, Nationwide Building Society’s group director of retail products, welcomed the controls: “Ensuring a level playing field between cash and non-cash Isas is vital to maintaining a strong savings market. We welcome the Government’s introduction of controls to support its ambition to get more people investing, while ensuring over-65s can rely on the full cash Isa allowance.”
Andrew Gall, head of savings at the Building Societies Association (BSA), said: “We welcome the Government providing greater clarity on its proposed Isa reforms. It is vital that savers have clear information and sufficient time to understand how the changes will affect them and the choices available to them from April 2027. Building societies also need certainty on the final rules so they can update systems and communicate with their members well ahead of implementation.”
Consultation and implementation
HMRC said a technical consultation with industry on the draft legislation will start shortly, and regulations will be laid in the autumn, with the new rules coming into force from April 6 2027. The Government is also consulting on the implementation of a new, simpler Isa product to support savers to buy their first home, which will replace the Lifetime Isa once available.
Reactions to Lifetime Isa replacement
Jasvinder Gakhal, chief executive, money at Skipton Building Society, commented: “Skipton Building Society was the first provider in the UK to offer the cash Lifetime Isa in 2017 and, today, remains one of the largest Lisa providers with over 160,000 Lisa savers. The Lisa has helped over 314,000 first-time buyers secure a home of their own, showing how targeted savings support can unlock affordability. This consultation is a step in the right direction. Removing the withdrawal penalty, scrapping the upper age limit and reviewing the price cap are all the right calls to create a simpler, more flexible product that works for modern savers. But the detail now matters. The Skipton Group home affordability index shows the average first-time buyer home will exceed the current cap in around 10% of local authority areas across Great Britain by the end of 2027. The new scheme must keep pace with the market.”
Jeremy Cox, head of strategy at Coventry Building Society, expressed concern: “We’re moving away from a fair and straightforward Isa system, where all adults can save or invest up to £20,000 tax-free each year, towards a more complex and confusing set of rules that will feel unfair to many consumers.”
Andrew Prosser, head of Investments at InvestEngine, warned: “Our worry is that instead of encouraging investing, this could end up putting people off. If stocks and shares Isas become more complex and less straightforward, some savers may just disengage altogether – which would go against the whole point of trying to build a stronger investing culture in the first place. What we really need is to improve financial education and make it more accessible – that would do far more to encourage people to invest than simply restricting how they use their savings and would be a more effective way of building a healthier investment culture in the UK.”
