Cash ISA: the allowance, the 2027 cut and how the rules work

The allowance, now and from April 2027

For the 2026/27 tax year the overall ISA allowance is 20,000 pounds, and the full amount can be paid into a cash ISA. That is the position you are working with now. From 6 April 2027 the rules change for savers under the age of 65, because the annual cash ISA subscription limit falls to 12,000 pounds. The overall ISA allowance stays at 20,000 pounds. Savers aged 65 and over keep the full 20,000 pounds cash ISA allowance from 6 April 2027. The change was announced at the November 2025 Budget and takes effect for the 2027/28 tax year.

Under the new rules an under-65 saver can still use the full 20,000 pounds across ISAs, but only 12,000 pounds of it in cash. The remaining 8,000 pounds would need to go into a stocks and shares ISA, an innovative finance ISA or a Lifetime ISA if it is to be used at all. That is the practical effect of the change: the overall allowance is unchanged, but the share of it that can sit in cash is capped for under-65s. The date to keep in mind is 6 April 2027, which is the start of the 2027/28 tax year. Until then, the current rules apply, and the full 20,000 pounds can go into a cash ISA for the 2026/27 year.

How a cash ISA actually works

A cash ISA is a savings account where interest is free of UK income tax. That is the core of it. The tax year runs from 6 April to 5 April, and the allowance resets at the start of each tax year. Unused allowance cannot be carried forward, so an amount not used by 5 April is gone for that year. Since April 2024 a saver can open and pay into more than one ISA of the same type in the same tax year, as long as the total paid across all ISAs stays within the overall annual allowance. That means you are not restricted to a single cash ISA provider in a year, but the total you subscribe across all of them still has to fit inside the 20,000 pounds overall limit for 2026/27.

Some cash ISAs are flexible, and some are not. Where a provider offers the flexible ISA feature, money withdrawn and replaced within the same tax year does not count again against the annual allowance. That matters if you take money out and later put it back, because on a non-flexible ISA the replacement counts as a new subscription and uses allowance. Not every provider offers the flexible feature, so it has to be checked rather than assumed. The distinction is simple but easy to miss: on a flexible ISA, a withdrawal and a replacement within the same tax year leaves your used allowance where it was; on a non-flexible ISA, the replacement uses allowance again. If you plan to move money in and out during the year, the flexible feature is one of the practical details worth confirming before you open or pay in.

Transfers, and the restriction coming in 2027

Transferring an existing ISA balance between providers does not count against the annual allowance, provided the receiving provider's transfer process is used. The important part is the method. If you withdraw the money yourself and pay it into the new ISA as a fresh payment, that counts as a new subscription against the annual allowance, unless the ISA is flexible. Using the formal transfer process avoids that, because the balance moves between providers rather than being withdrawn and re-subscribed. So the safe route for moving an existing ISA is to ask the new provider to request the transfer, rather than taking the cash out and paying it in again.

A transfer restriction has been announced alongside the 2027 change. Under it, savers under 65 would no longer be able to transfer from a stocks and shares ISA or an innovative finance ISA into a cash ISA. That is announced and not yet in force, and it sits alongside the fall in the cash ISA subscription limit for under-65s from 6 April 2027. Because it is not yet in force, the position before acting in 2027 should be checked rather than assumed. The direction of the change is towards less movement into cash for under-65s, both in what can be subscribed each year and in what can be transferred in. If you hold a stocks and shares ISA or an innovative finance ISA and are considering a move into cash, the timing relative to 6 April 2027 is the point to watch.

Cash ISA or an ordinary savings account

The personal savings allowance lets basic rate taxpayers earn 1,000 pounds of savings interest tax free each year outside an ISA. Higher rate taxpayers get 500 pounds, and additional rate taxpayers get nothing. That allowance applies to interest earned outside an ISA, so it is the figure to compare against when weighing up whether the ISA tax shelter does anything for you. For a saver whose interest sits well inside the personal savings allowance, the tax advantage of an ISA may be small at current rates, because the interest would not have been taxed anyway. For a saver who exceeds the allowance, or expects to, the ISA shelter matters more, and it compounds over years because ISA interest never counts towards the personal savings allowance and is never taxed.

The arithmetic is straightforward but personal. If your total savings interest outside an ISA stays under your personal savings allowance, the tax saved by holding the same balance in a cash ISA is nil at that point. If your interest goes above it, the excess is taxed at your marginal rate, and the ISA shelter removes that. The more you hold, and the higher your marginal rate, the more the shelter is worth. This depends on your individual tax position and the rate on offer, and it is not a recommendation either way. The comparison is between a tax-free wrapper and a taxable account with an allowance, and which one leaves you better off depends on your own figures rather than on a general rule.

Protection and the practical checks

The Financial Services Compensation Scheme protects eligible deposits up to 85,000 pounds per person per authorised firm. One detail that catches people out is that some brands share a single banking licence, so two accounts under one licence share one limit rather than giving two separate 85,000 pounds protections. If you hold cash across more than one brand, checking which licence each sits under is part of understanding your actual protection, because the limit is per authorised firm and not per brand name. The 85,000 pounds figure is per person per authorised firm, so joint accounts and multiple licences change how the total is counted.

Before opening a cash ISA, there are practical checks worth making. Whether the account is easy access, notice or fixed term affects when you can get the money. Whether the rate is variable or fixed affects how it can change. Whether there is a bonus that drops away affects what the rate becomes later. Whether the provider allows transfers in matters if you want to move an existing ISA across. Whether the ISA is flexible matters if you plan to withdraw and replace money within the tax year. Withdrawing from a fixed-term cash ISA usually carries an interest penalty, so access terms are part of the decision rather than an afterthought. These are the details that determine how the account behaves in practice, and they sit alongside the allowance rules covered above.

Source: GOV.UK: Individual Savings Accounts.

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Frequently asked questions

What is the cash ISA allowance for 2026/27?

The overall ISA allowance for 2026/27 is 20,000 pounds, and the full amount can be paid into a cash ISA.

What changes from 6 April 2027?

From 6 April 2027 the annual cash ISA subscription limit falls to 12,000 pounds for savers under the age of 65. The overall ISA allowance remains 20,000 pounds. Savers aged 65 and over keep the full 20,000 pounds cash ISA allowance.

If the cash limit is 12,000 pounds, where does the rest of the 20,000 pounds go?

From 6 April 2027 an under-65 saver using the full 20,000 pounds allowance can hold at most 12,000 pounds of it in cash, with the remaining 8,000 pounds needing to go into a stocks and shares ISA, innovative finance ISA or Lifetime ISA if it is to be used at all.

Is interest in a cash ISA taxed?

Interest earned within a cash ISA is free of UK income tax.

Can unused ISA allowance be carried forward?

No. The ISA tax year runs from 6 April to 5 April and unused allowance cannot be carried forward.