The Cash ISA Allowance Cut, Explained

If you save into a cash ISA, the rules are changing on 6 April 2027, and the change is bigger than the headline number suggests.

Here is what is happening, who it affects, and what is worth doing with the time before it starts.

What's changing

At the Autumn Budget in November 2025, the Chancellor announced that the amount you can put into a cash ISA each year will fall from £20,000 to £12,000. It takes effect from April 2027.

Your overall ISA allowance stays at £20,000. What changes is where it can go. From 2027, if you are under 65, only £12,000 of that can sit in cash. The other £8,000 has to be invested instead, in a stocks and shares ISA, an innovative finance ISA or a lifetime ISA.

Two things stay as they are. If you are 65 or over you keep the full £20,000 in cash, and the higher limit comes back from the start of the tax year in which you turn 65. And money already in your cash ISA is untouched. This applies only to new contributions from April 2027 onwards, so nothing you have sheltered so far is at risk.

The part most people miss

The obvious workaround is to open a stocks and shares ISA and simply leave the money in cash inside it. The government thought of that.

From the same date, interest paid on cash held inside a stocks and shares or innovative finance ISA will be charged at a flat 22%. Your ISA provider pays this to HMRC directly, so there is nothing for you to declare, but the money is gone all the same. You can still hold some cash in an investment ISA, and you would expect to while you decide what to buy, but you cannot hold only cash.

There is a second restriction. Once the rules change, if you are under 65 you will not be able to transfer money from a stocks and shares ISA back into a cash ISA. Transfers the other way are fine, and savers over 65 are unaffected.

Taken together, these close off the easy routes around the new limit. The policy intent is not subtle: the government wants long-term savings invested rather than sitting in deposits.

Cash outside an ISA is getting more expensive too

This is the piece that has had less attention. From April 2027, the tax on savings interest earned outside an ISA rises by two percentage points across every band.

The personal savings allowance stays where it is, at £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers. So if your interest stays within that, nothing changes for you. Above it, you keep slightly less than you do now.

For anyone holding a large cash balance outside a tax wrapper, the two changes compound. Less room in the cash ISA, and a higher bill on what sits outside it.

What to do with the time left

There is no need to rush into anything. The change is still months away and the sensible responses are unglamorous.

Use this year's cash allowance if you have the money. The current tax year, which runs to 5 April 2027, is the last one where an under-65 can put a full £20,000 into cash. Anything you shelter now stays sheltered for good.

Think about whether you are holding too much cash anyway. Plenty of people have far more on deposit than their emergency fund needs, mostly through inertia rather than decision. That is the behaviour the reform is aimed at, and for a lot of savers the government's underlying point is a fair one, even if you dislike being nudged.

Don't invest money you'll need soon. The flip side is that being pushed out of cash does not make investing right for everyone. Money you need within a few years belongs in cash regardless of what the allowance says, and taking that £8,000 into the markets because the rules have made cash less attractive is a poor reason to do it.

Use official transfers, never withdrawals. If you move an ISA, ask the new provider to arrange the transfer. Taking the money out yourself and paying it back in loses the tax-free status permanently. This has always been true and it catches people out every year.

The wider picture

It is worth noting what is happening elsewhere. Ireland has just announced its first ISA-style account, designed to move savers out of bank deposits and into investments. Britain, which has had ISAs for over 25 years, is narrowing one to achieve exactly the same thing.

Two governments, opposite directions, identical goal. Both have looked at how much of their citizens' money is sitting in low-return deposit accounts and decided to do something about it.

Whether nudging works better than building something new is a question we will be able to answer in about a decade.

This article is general information, not financial or tax advice. The rules described were announced at Autumn Budget 2025 and take effect in April 2027. Allowances and rates can change.