Forthcoming and Proposed ISA Changes

Following the Autumn Budget, the Government has confirmed changes to ISAs and the Lifetime ISA (LISA), most taking effect from 6 April 2027. While headlines focused on the Cash ISA allowance, there’s more worth knowing, especially if you hold a Stocks and Shares ISA or LISA.

1. Cash ISA allowance cut to £12,000 for under-65s

From 6 April 2027, the amount you can pay into a Cash ISA each tax year falls from £20,000 to £12,000 if you’re under 65.

• The overall ISA allowance stays at £20,000; the remaining £8,000 must go into a Stocks and Shares ISA or Innovative Finance ISA.
• Savers aged 65+ keep the full £20,000 Cash ISA allowance.
• Only new contributions are affected; existing Cash ISA holdings remain protected.
• You can still use the full £20,000 Cash ISA allowance up to 5 April 2027 under current rules.

What this means in practice: if you’ve relied heavily on Cash ISAs, you’ll need to consider from April 2027 whether some of that money should move into investments instead, depending on your goals and attitude to risk.

2. New 22% charge on cash held within Stocks and Shares ISAs

From April 2027, any interest earned on cash held within a Stocks and Shares ISA will be subject to a new 22% charge, applying to all ISA holders regardless of age or tax status. While still in consultation, it is likely that this charge will be collected by the ISA providers.

Money Market Funds

HMRC has confirmed that money market funds can continue to be held within a Stocks and Shares ISA from April 2027, giving savers a way to hold short-term, cash-like assets without triggering the new 22% charge. The only exception is where a Stocks and Shares ISA is invested entirely in money market funds; in this case, the ISA would be treated as “non-qualifying.” Holding even one other qualifying investment alongside them is enough to keep the ISA compliant. The exact consequence of breaching this rule isn’t yet confirmed, so it’s worth ensuring money market funds don’t make up the whole portfolio.

3. Restrictions on transferring between ISA types

Under the current rules, you can freely transfer money between different types of ISA. From April 2027, this flexibility is being reduced for under-65s only. Transfers from a Stocks and Shares ISA into a Cash ISA will no longer be permitted. Transfers in the other direction, from cash into investments, will still be allowed as well.

If you’ve been considering transferring an ISA from Stocks and Shares to Cash and are under the age of 65, for example to reduce investment risk ahead of a known expenditure, this may be easier to action before April 2027 than after.

4. Junior ISA allowance unaffected

It’s worth noting that none of the above changes applies to Junior ISAs. The Junior ISA allowance remains unchanged at £9,000 per child, per tax year, and is frozen at that level until April 2031, alongside the adult ISA allowance.

5. The Lifetime ISA (LISA) is being phased out

Perhaps the biggest long-term change is to the Lifetime ISA. The Government has launched a consultation on a new product, the “First Time Buyer ISA,” aimed at first-time buyers saving for a deposit.

• Existing LISA holders, or anyone opening one before the replacement launches, can keep contributing and receiving the 25% bonus in the meantime.
• Full details of the replacement, including bonus rate, annual limit, and property price cap, are still to be confirmed via the consultation.
• The change is partly driven by criticism of the LISA’s withdrawal penalty, which penalises savers accessing funds for reasons other than a first home.

What this means in practice: if you’re eligible for a LISA (18–39) and considering one for a first home, it’s worth opening it sooner rather than later to lock in current terms.

What should you do now?

These changes don’t take effect until April 2027, but it’s worth reviewing your position ahead of time:

• If you rely heavily on Cash ISAs, consider whether some of your allowance should shift towards investments.
• If you hold uninvested cash in a Stocks and Shares ISA, think about whether it should now be invested.
• If you’re planning to move money from a Stocks and Shares ISA into a Cash ISA, do so before April 2027 to avoid the new transfer restriction.
• If you’re eligible for a LISA, consider opening one before it’s withdrawn to new savers.

As always, the right approach depends entirely on your individual circumstances, goals, and attitude to risk. If you’d like to discuss how these changes might affect your own savings and investment strategy, please get in touch with us.

Details are based on Government announcements and draft legislation available at the date of publication. As some measures remain subject to consultation and final legislation, the position may change before implementation.