Last year, the UK government announced that under-65s will be able to save less in cash ISAs from April 2027. Now, to close a potential loophole, they're planning a new 22% charge – for everyone – on interest earned from cash within stocks and shares ISAs.
Here’s a look at what's planned, who may be affected and why ISAs are still a key tool for sensible financial planning.
What are the ISA changes from April 2027?
ISAs (Individual Savings Accounts) were introduced back in 1999 to encourage UK residents to save, and that’s exactly what they’ve done. As it stands, you can put up to £20,000 a year into ISAs without paying any taxes on interest, gains or dividends, on new or existing ISA earnings. For those able to use the full allowance, including many Goodmans clients, ISAs have been a valuable way to grow savings free of taxes, year on year.
However, thanks to the last Autumn Budget, from 6th April 2027:
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The annual cash ISA limit is set to drop from £20,000 to £12,000 for anyone under the age of 65. This means that any under-65s who use the full £20,000 allowance must place at least £8,000 of it into a stocks and shares or other investment ISA.
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Under-65s won’t be able to transfer existing funds from a stocks and shares ISA into a cash ISA (but can still transfer in the other direction).
Then, in a June announcement, the government shut off a possible workaround for this – holding cash within a stocks and shares ISA – with these additional changes from next April:
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A new 22% charge on any interest paid on cash within a stocks and shares ISA. This will apply to everyone, regardless of age.
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This flat rate is a charge not a tax, which means it can’t be reduced by any tax relief – for example, it won’t be included within your tax-free personal allowance.
Will the new ISA rules affect your savings?
The government’s intention with the reduced allowance for under-65s is to encourage younger people to invest rather than park their savings in cash. The idea is that if you have longer to invest, you’re able to benefit from the potential higher returns from stocks and shares over time. As such, the reduced cash ISA allowance doesn’t limit saving, but it does force some people to consider redirecting their money into investments with higher risk/return potential.
While the new 22% charge applies to anyone, this will generally have a very small impact for most people, who use stocks and shares ISAs as they're intended.
Existing cash ISA savings aren’t affected by the changes, so can continue to grow as before. And all investment growth and dividends earned within a stocks and shares ISA will remain tax-free, year on year; it’s just interest on cash that becomes chargeable
So ISAs still have a highly tax-efficient role to play within a financial plan.
What should ISA savers do next?
It’s important to note that these changes are not yet law and the full details haven’t been confirmed, so things are subject to review, particularly given the upcoming leadership change… anyone remember the short-lived ‘British ISA’?!
At Goodmans, we’re continuing to monitor the proposed changes and what they could mean for long-term savers and investors. As always, we’ll keep our clients informed to help them understand their options and keep their financial plans on track.
With ISA rules set to change, now's a good time to review how your savings and investments are structured. If you’d like to chat about your financial planning, just get in touch.
