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By Chandraketu Tripathi · Updated April 2026 · Fact-checked ISA · April 2026Chancellor Rachel Reeves announced at the Autumn Budget in November 2025 that the cash ISA allowance for under-65s will be cut from £20,000 to £12,000 from April 2027. The change is designed to encourage UK savers to invest more in the stock market rather than holding cash. Here is everything you need to know — and what to do before the rules change.
What Exactly Is Changing?From 6 April 2027, individuals under the age of 65 will be restricted to contributing a maximum of £12,000 per year to cash ISAs. The overall annual ISA allowance of £20,000 remains unchanged — but the remaining £8,000 must be held in stocks and shares ISAs (or innovative finance ISAs) to remain tax-free. Cash above the £12,000 limit held in a standard savings account will be subject to income tax on the interest earned. Over-65s are exempt from the restriction and retain the full £20,000 cash ISA allowance. The Treasury estimates this change will affect approximately 1.3 million savers who currently contribute more than £12,000 per year to cash ISAs. 2026/27 — The Last Full Year at £20,000The 2026/27 tax year (April 2026 to April 2027) is the last year in which under-65s can contribute the full £20,000 to a cash ISA. If you have the means to max out your £20,000 cash ISA allowance this year, doing so protects that money under the old rules — existing ISA balances are not affected by the new limit, only new contributions from April 2027 onwards. 💡 2026/27 is your final opportunity to contribute up to £20,000 to a cash ISA as an under-65. New tax year started 6 April 2026 — you now have until 5 April 2027 to use the full £20,000 allowance. After that, the maximum drops to £12,000. Existing ISA balances are not affected — only new annual contributions. The Tax Impact of the ChangeThe Treasury confirmed the cut will raise £95 million from savers over five years — meaning it genuinely will result in more tax for UK savers. A basic-rate taxpayer who previously used their full £20,000 cash ISA allowance and now places the extra £8,000 into a standard savings account at 4.5% AER earns £360 in interest — taxable at 20%, resulting in a £72 annual tax bill. Higher-rate taxpayers face double this impact. What Should You Put the £8,000 In?From April 2027, the £8,000 above the cash ISA limit can go into a stocks and shares ISA to remain tax-free. If you are uncomfortable with investment risk, a cautious stocks and shares ISA holding a money market fund or short-dated bond fund provides near-cash returns with tax-free status. Alternatively, you can simply pay tax on the interest on a standard savings account — if your savings interest is within your Personal Savings Allowance (£1,000 for basic rate taxpayers), no tax is due anyway. ⭐ OUR VERDICT The Rachel Reeves cash ISA cut is a significant change for regular savers above the £12,000 threshold. The most important immediate action is to maximise your 2026/27 cash ISA contribution before 5 April 2027. From April 2027, the best strategy for most under-65s is to split between a cash ISA (up to £12,000) and a stocks and shares ISA or cautious investment ISA (£8,000). Over-65s are unaffected. Seek financial advice if unsure how to structure your savings after the changes take effect. Frequently Asked QuestionsWhen does the cash ISA limit drop to £12,000? The cash ISA allowance for under-65s drops from £20,000 to £12,000 from 6 April 2027. The 2026/27 tax year (April 2026 to April 2027) is the last full year at the £20,000 limit. Existing ISA balances are not affected — only new contributions from April 2027 onwards. Are over-65s affected by the cash ISA changes? No. Over-65s are exempt from the restriction and retain the full £20,000 cash ISA allowance. The exemption applies from the tax year in which the individual turns 65. What happens to my existing cash ISA balance? Existing ISA balances are not affected by the rule change. You can continue to hold whatever amount you currently have in your cash ISA. Only new annual contributions from April 2027 are subject to the £12,000 limit for under-65s. Can I put the extra £8,000 into a stocks and shares ISA instead? Yes. The overall annual ISA allowance remains £20,000. Under-65s can contribute up to £12,000 to a cash ISA and the remaining £8,000 to a stocks and shares ISA (or innovative finance ISA). Both remain completely tax-free within their respective limits. |
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