From April 2027, ISA and savings rules are set to become significantly more complex, with several key changes affecting savers across the UK. The cash ISA limit will be reduced for those under 65, a new charge on cash held in stocks and shares ISAs will be introduced, and the tax rate on savings interest outside ISAs will increase. Additionally, a new First Time Buyer ISA will replace the Lifetime ISA from April 2028.
Cash ISA Limit Cut for Under-65s
The annual cash ISA limit will be slashed from £20,000 to £12,000 from April 2027 for everyone under the age of 65. The overall ISA limit remains at £20,000, meaning savers could allocate up to £12,000 into a cash ISA and £8,000 into another type of ISA. This change is designed to encourage younger people to invest rather than hold cash. Over-65s will still be able to save up to £20,000 into a cash ISA each tax year.
New 22% Charge for Cash in Stocks and Shares ISAs
To prevent savers from circumventing the new cash ISA limit rules, a 22% levy will be applied to interest earned from cash held in stocks and shares ISAs from April 2027. Furthermore, savers will not be allowed to hold 100% of their non-cash ISA portfolio in Money Market Funds, which are cash-like assets investing in short-term debt securities. The new rules also prohibit placing £20,000 into a non-cash ISA and then transferring those funds to a cash ISA.
New First Time Buyer ISA
A new First Time Buyer ISA is set to replace the Lifetime ISA, expected to launch in April 2028. This ISA will provide savers with a bonus when purchasing their first home, similar to the Lifetime ISA. However, the bonus amount has not yet been confirmed. Currently, savers can put up to £4,000 per tax year into a Lifetime ISA and receive a 25% bonus (up to £1,000) from the government. The Lifetime ISA can be used for a first home purchase or retirement, with savings accessible from age 60. The new First Time Buyer ISA will be strictly for first home purchases and will not be available for retirement savings. The property threshold for the Lifetime ISA is £450,000; the threshold for the new ISA is yet to be determined.
Tax Rate on Savings Interest Increases
For savings held outside ISAs, tax is payable on interest exceeding certain thresholds. Basic-rate taxpayers currently can earn up to £1,000 in savings interest tax-free, paying 20% tax on any excess. This rate will rise to 22% from April 2027. Higher-rate taxpayers currently pay 40% tax on savings interest over £500 per year, which will increase to 42%. Additional rate taxpayers currently pay 45% tax on all savings interest, rising to 47%.
