The annual cash ISA allowance will be cut to £12,000 for savers under 65 from April 2027 (Image: Getty)
Anyone under the age of 65 is facing an £8,000 cut to the cash ISA allowance from next April in new rules under Andy Burnham’s government.
From April 6, 2027, the annual cash ISA allowance will be cut from £20,000 down to £12,000 for savers under 65, reducing the amount of tax-free savings you can put into an ISA by £8,000 per year. Under current rules, you can pay a maximum of £20,000 into a cash ISA in a single tax year, which runs from April 6 until April 5 the following year, and you never have to pay tax on the money that you put in. It means that up to £20,000 of savings will be free of income tax and capital gains, and you can earn hundreds of pounds of interest.
But the changes from April 6 next year will significantly reduce this limit, cutting the maximum amount younger people can save tax-free in a cash ISA per year by £8,000. The cut only applies to people under the age of 65, as the limit for those who are 65 and over will remain at £20,000 from April 6.
The limit for Stocks and Shares ISAs, LISAs and Innovative Finances ISA (non cash ISAs) will also remain at £20,000 from April 2027.
New Prime Minister Andy Burnham inherits these cash ISA reforms from his predecessors Sir Keir Starmer and ex-Chancellor Rachel Reeves, who announced the changes in the Autumn Budget in 2025.
The changes are expected to proceed as planned under Mr Burnham’s government from April 6, 2027, at which point the cash ISA limit for under 65s will be cut to £12,000, while the overall ISA limit will be £20,000.
The shake-up aims to encourage more people to put money into investments, rather than holding large amounts of savings in cash.
Over 65s are due to be exempt from the rule changes as state pensioners typically rely on cash savings for retirement income, so require safer, more accessible savings rather than stock investments which can be more volatile.
Explaining the changes, Jemma Slingo, Pensions & Investment Writer at Fidelity International, said: “A cash ISA is a savings account where any interest you earn is free from income tax. You can currently contribute up to £20,000 each tax year.
“From 6 April 2027, however, the annual cash ISA allowance for people under 65 will fall to £12,000. The allowance for savers aged 65 and over will remain at £20,000, meaning they will not be affected by the reforms. In the tax year you turn 65, you will be entitled to the full £20,000 allowance.
“The lower limit will apply only to new contributions. Any money already held in a cash ISA will still be sheltered from tax.
“To prevent people getting around the new rules, under-65s will not be able to transfer money from a stocks and shares ISA – or an Innovative Finance ISA – into a cash ISA. However, it will still be possible to transfer money in the opposite direction.”
The government is also introducing changes to investment ISAs from April 2027 too, which will apply to everyone, regardless of their age.
This will see a flat 22% charge imposed on any interest paid on uninvested cash within a stocks and shares ISA. The charge aims to prevent people from stashing large amounts of cash and allowing it to sit for long periods earning tax-free interest.
Confirming the reforms earlier this year, HM Revenue and Customs (HMRC) said: “Investors will still be able to hold cash in a non Cash ISA, but a flat rate charge (22%) will apply to any interest or alternative finance return paid on cash held within a non Cash ISA to discourage long-term cash holdings.
“ISA managers will pay the charge to HMRC — individuals are not required to declare to HMRC any interest paid on an ISA. The Personal Savings Allowance does not apply to any growth or interest paid in an ISA.”
