ISA Changes 2026/27: Cash ISA Cut, 22% Charge and Transfer Ban

ISAs have long been the simplest way for ordinary savers to keep the taxman away from their interest and investment gains. But a wave of ISA rule changes announced for 2026 and 2027 is about to make the picture more complicated - including a cut to the Cash ISA allowance, a new tax charge on cash held inside investment ISAs, and a transfer ban aimed at under-65s. If you save or invest through an ISA, here's what's changing, when, and what to do before the rules bite.

The headline ISA changes at a glance

• Cash ISA allowance cut to £12,000 from April 2027 (down from the current £20,000 overall allowance, which previously could all go into cash).
• A 22% charge on cash interest held in Stocks & Shares ISAs and Innovative Finance ISAs, designed to stop savers parking cash in investment wrappers to dodge the lower cash limit.
• A transfer ban for under-65s moving money from non-Cash ISAs into Cash ISAs.
• A restriction on holding 100% money market funds inside non-Cash ISAs.

The overall £20,000 annual ISA allowance itself is expected to continue, but how much of it you can hold in cash is being squeezed - a clear nudge from the government to push long-term savers towards investing rather than cash.

The Cash ISA allowance cut explained

The biggest change for everyday savers is the reduction of the Cash ISA allowance to £12,000 from April 2027. Today you can shelter up to £20,000 a year entirely in cash if you want to. From 2027, only £12,000 of your annual allowance can go into a Cash ISA; the remainder of the £20,000 would need to go into a Stocks & Shares ISA, a Lifetime ISA or an Innovative Finance ISA to be used at all.

For cautious savers - particularly older people and those saving for a near-term goal like a house deposit - this matters, because cash carries no investment risk. If you value the certainty of cash, it may be worth using your full Cash ISA allowance in 2025/26 and 2026/27 while the higher limit still applies. Our ISA calculator helps you see how much interest your allowance could earn, and the savings calculator models growth over time.

The new 22% charge on cash in investment ISAs

To stop people sidestepping the lower cash limit, a 22% charge will apply to interest paid on cash holdings inside Stocks & Shares ISAs and Innovative Finance ISAs. Investment ISAs have always allowed you to hold some uninvested cash - for example, between selling one fund and buying another. The new charge targets people who would otherwise hold large cash balances in an investment wrapper purely to keep it tax-free above the cash limit.

In practice this means you should treat the cash element of a Stocks & Shares ISA as a short-term holding area, not a savings account. If you want a meaningful, genuinely tax-free cash balance, a dedicated Cash ISA (within the new £12,000 limit) is the place for it.

The under-65 transfer ban

The rules will also prevent under-65s from transferring money out of non-Cash ISAs into Cash ISAs. The policy intent is to keep younger savers' money invested for the long term, where it has historically produced better returns than cash. If you're over 65, you retain more flexibility to move investments into the safety of cash as you approach or enter retirement.

If you're under 65 and think you'll want some money in cash, the lesson is to plan your contributions deliberately - decide how much should be in cash versus invested when you pay in, because reshuffling later becomes harder.

Why the government is doing this

The changes form part of a wider push to get more household money invested in shares and funds rather than sitting in cash, which the Treasury argues holds back both individual returns and economic growth. Whether or not you agree, the practical effect is the same: cash ISAs become a smaller, more restricted pot, and investment ISAs become the default home for larger ISA balances.

How this interacts with the Personal Savings Allowance

If you can't shelter all your cash in an ISA, the next line of defence is the Personal Savings Allowance (PSA) on ordinary (non-ISA) savings: £1,000 of interest tax-free for basic-rate taxpayers, £500 for higher-rate taxpayers, and nothing for additional-rate taxpayers. With interest rates much higher than a few years ago, it's now easy to breach the PSA - a higher-rate taxpayer needs only around £10,000 in a 5% account to use up their £500. Check where you stand with our Personal Savings Allowance calculator, and see what tax you'd owe on interest above it with the savings interest tax calculator.

What about the Lifetime ISA?

The Lifetime ISA (LISA) - used by many first-time buyers for the 25% government bonus - is a separate wrapper with its own £4,000 annual limit that counts towards your overall ISA allowance. It isn't directly cut by the Cash ISA change, so it remains a strong option for those saving for a first home or for retirement. Our Lifetime ISA calculator shows how the bonus builds up over time.

What to do before the rules change

• Use your higher Cash ISA allowance now. If you prefer cash, fill your Cash ISA in 2025/26 and 2026/27 before the £12,000 cap arrives in 2027.
• Decide your cash-versus-invested split deliberately, especially if you're under 65 and will lose easy transfers into cash.
• Don't park large cash balances in a Stocks & Shares ISA once the 22% charge applies - use a Cash ISA for cash.
• Mind your Personal Savings Allowance on any savings that don't fit in an ISA, and factor the tax in.
• Review first-home saving - the Lifetime ISA bonus is unaffected and still valuable.

The four types of ISA - and how the changes hit each

It helps to be clear which wrapper you're using, because the new rules affect them differently:

Across all of them, the overall £20,000 annual allowance is shared - paying into one reduces what you can put in the others. The change isn't to the total you can shelter, but to how much of it can sit safely in cash.

Worked example: a cautious saver after April 2027

Imagine a saver who currently puts the full £20,000 into a Cash ISA each year because they don't want investment risk. From April 2027:

• They can put £12,000 into the Cash ISA tax-free as before.
• The remaining £8,000 of their allowance can only be used in a Stocks & Shares, Lifetime or Innovative Finance ISA - all of which carry investment risk or restrictions.
• If they instead keep that £8,000 in an ordinary savings account, the interest counts against their Personal Savings Allowance, and anything above it is taxable.

For this saver, the practical takeaway is to front-load their Cash ISA in 2025/26 and 2026/27 while the full allowance can still go into cash, and to think ahead about whether they're comfortable investing the surplus. The savings calculator and savings interest tax calculator help weigh up the tax-free ISA route against a taxed savings account.

What counts towards your ISA allowance

A few reminders that catch people out: the allowance is per person per tax year (it doesn't roll over if unused), you can pay into one of each type of ISA in the same year as long as you stay within the £20,000 total, and transfers of money from previous years don't use up this year's allowance. Children have a separate Junior ISA allowance. Getting the timing and split right matters more than ever once the cash limit drops, so it's worth planning your contributions at the start of the tax year rather than rushing them in March.

Frequently asked questions

When is the Cash ISA allowance being cut?

The Cash ISA allowance is set to fall to £12,000 from April 2027. Until then the existing limits apply, so 2025/26 and 2026/27 are the last years at the higher cash allowance.

What is the 22% ISA charge?

It's a charge on interest paid on cash held inside Stocks & Shares and Innovative Finance ISAs, introduced to stop savers using investment ISAs to hold cash above the reduced Cash ISA limit.

Can I still transfer between ISAs?

Yes, but from the change date under-65s won't be able to transfer from non-Cash ISAs into Cash ISAs. Other transfers, and transfers for over-65s, continue.

Is my ISA interest still tax-free?

Interest in a Cash ISA remains tax-free within the (lower) allowance. Outside an ISA, savings interest is covered only up to your Personal Savings Allowance - use our PSA calculator to check.

Sources: GOV.UK - Individual Savings Accounts (ISAs) and GOV.UK - Tax on savings interest. ISA rules for 2026/27 and 2027 are subject to final legislation; confirm details on GOV.UK before acting.