Chancellor Rachel Reeves has been back in the headlines this week over a reported plan to apply a tax charge to cash held inside Stocks and Shares ISAs, a move floated as a way to stop savers sidestepping the cash ISA cut already confirmed for April 2027. The proposal is not yet legislated. What is legislated is the wider package announced in the Autumn Budget 2025, which is the bigger story for most savers. This guide sets out what is changing, when, and what it means in plain English.
TL;DR
From 6 April 2027 the annual cash ISA allowance falls from £20,000 to £12,000 for savers under 65. The overall £20,000 ISA allowance stays. Savers over 65 keep the full £20,000 cash allowance. Tax rates on savings income outside an ISA rise by two percentage points to 22, 42 and 47 per cent across the three bands. Existing cash ISA balances built up before April 2027 are unaffected and continue to earn tax-free interest. HMRC will also introduce a tax charge on interest from uninvested cash held inside Stocks and Shares ISAs.
Last reviewed: 23 May 2026
What is actually changing from April 2027
The headline change confirmed in the Autumn Budget 2025 is a split annual ISA allowance for savers under the age of 65. The overall ISA allowance stays at £20,000 per tax year. Within that, the maximum that can be paid into a cash ISA falls from £20,000 to £12,000. The remaining £8,000 must be used in another ISA type, most commonly a Stocks and Shares ISA, an Innovative Finance ISA or a Lifetime ISA. Savers aged 65 and over keep the full £20,000 cash ISA allowance.
The change takes effect on 6 April 2027, the start of the 2027/28 tax year. It applies only to new contributions made on or after that date. Money already held in a cash ISA before 6 April 2027 continues to earn tax-free interest under the rules in place when it was deposited.
Why Reeves is doing this
The government's stated objective is to nudge more household money out of cash and into UK-listed shares. Treasury figures show the UK has one of the lowest retail investment rates in the G7, and ministers argue that a larger retail investor base would support business funding and economic growth. Cash ISAs remain popular: HMRC data shows around 63 per cent of adult ISA subscriptions in 2022/23 were cash. Critics, including building societies, argue cash ISA money is already productive because it funds the mortgage market.
The 22 per cent figure trending this week
Reports this week have linked Reeves to a proposed 22 per cent tax on interest earned from cash held inside Stocks and Shares ISAs. HMRC has already confirmed that uninvested cash inside Stocks and Shares ISAs will be subject to a tax charge from April 2027 to prevent the new cash ISA limit being circumvented. The exact rate is still subject to consultation. The figure being discussed mirrors the new basic rate of savings income tax that takes effect at the same time.
Savings income tax rates outside an ISA are also rising
From 6 April 2027 the tax rate applied to savings income above your Personal Savings Allowance rises by two percentage points in every band. Basic rate moves from 20 to 22 per cent. Higher rate moves from 40 to 42 per cent. Additional rate moves from 45 to 47 per cent. Additional rate taxpayers receive no Personal Savings Allowance, so the new 47 per cent rate applies from the first pound of taxable savings interest.
For a higher rate taxpayer earning 4.5 per cent on £30,000 outside an ISA, the gross interest is £1,350. Under the current 40 per cent rate the tax bill is £540. From April 2027 the same interest would be taxed at 42 per cent, raising the bill to £567. The change is small in isolation but compounds over time and shifts the calculation on whether to use a cash ISA wrapper at all.
Transfers from Stocks and Shares ISAs into cash ISAs will be blocked
Alongside the main change, HMRC plans to ban transfers from Stocks and Shares ISAs and Innovative Finance ISAs into cash ISAs for savers under 65. This closes an obvious workaround in which a saver could pay £20,000 into a Stocks and Shares ISA, hold most of it as cash, then move it to a cash ISA in a later tax year.
What this means for your 2026/27 strategy
The 2026/27 tax year, which runs from 6 April 2026 to 5 April 2027, is the last full year under the existing rules. Under-65s who want to maximise tax-free cash holdings can still pay up to £20,000 into a cash ISA this tax year. Savers building toward a house deposit, an emergency fund or any near-term goal that needs to stay in cash may want to use that headroom while it is available.
From April 2027, anyone under 65 who wants to use the full £20,000 ISA allowance will need to put at least £8,000 into an investment-style ISA. That does not require picking individual shares. Most platforms offer low-cost global index funds and ready-made portfolios that satisfy the investment requirement. Investments carry capital risk that cash does not, which is a meaningful change in profile and a point worth taking advice on for anyone holding large balances.
Disclaimer
This article is for general information only and does not constitute financial or tax advice. ISA rules, tax rates and personal allowances are set by HM Treasury and administered by HMRC, and may change. Anyone uncertain how the new rules affect their position should consult an authorised financial adviser or speak to HMRC directly. For more detail on hubs and adjacent guides, see the Kaeltripton explore index.
Frequently asked questions
When does the new cash ISA limit start?
6 April 2027, the start of the 2027/28 tax year. The 2026/27 tax year is unaffected.
Will my existing cash ISA savings be taxed?
No. Balances built up before 6 April 2027 continue to earn tax-free interest under existing rules. The new £12,000 cap applies only to new contributions made on or after that date.
What is the overall ISA allowance from April 2027?
The overall annual allowance stays at £20,000. For under-65s, a maximum of £12,000 can go into a cash ISA and the remaining £8,000 must be used in another ISA type such as a Stocks and Shares ISA.
Does the cash ISA cut apply to people over 65?
No. Savers aged 65 and over keep the full £20,000 cash ISA allowance, at least initially. HMRC has indicated this exemption may be reviewed at a later point.
What is the new tax rate on savings interest outside an ISA?
From 6 April 2027 the rate above the Personal Savings Allowance rises by two percentage points to 22 per cent for basic rate taxpayers, 42 per cent for higher rate, and 47 per cent for additional rate. Additional rate taxpayers do not get a Personal Savings Allowance.
Will cash held inside a Stocks and Shares ISA be taxed?
HMRC has confirmed a charge will apply to interest earned on uninvested cash held inside Stocks and Shares ISAs from April 2027. The exact rate is subject to consultation. Reports this week suggest a 22 per cent figure aligned with the new basic savings rate.
Can I still transfer cash ISA balances between providers?
Yes. Transfers between cash ISA providers remain unchanged. The new restriction is on transfers from Stocks and Shares or Innovative Finance ISAs into cash ISAs, which will be blocked for under-65s.
How we verified this
This article draws on the Autumn Budget 2025 documents, HMRC technical notes on ISA reform, House of Commons Library briefings on individual savings accounts, and Treasury statements on savings income tax rates from April 2027. Figures on UK retail investment rates and ISA subscription patterns come from HMRC's annual Individual Savings Account statistics publication. No editorial weighting has been applied to industry commentary cited as illustrative.
