From April 2027, savers will face stricter rules designed to prevent them from sidestepping the new reduced cash ISA allowance.
The changes, announced by HM Revenue and Customs (HMRC), aim to stop clever workarounds that some investors might use to maximise tax-free savings.
Guidance on the HMRC website explains that the new measures are being introduced “to avoid circumvention of the lower limit for cash ISAs.”
Simply put, the government wants to make sure savers don’t shift money into other accounts or investment products to bypass the £12,000 cash ISA cap.
Cash ISA Allowance Cuts: What Savers Need to Know?
At present, grown-ups can save up to £20,000 a time across all ISA types, including cash ISAs, stocks and shares ISAs, or a combination of both.
Still, the government has revealed that, from April 2027, the periodic cash ISA allowance for most grown-ups will fall to£ 12,000. Savers who are 65 and over will keep the full £20,000 limit.
The overall ISA donation limit will remain£ 20,000, which means some savers may choose to put the redundant plutocrat into stocks and shares ISAs or Innovative Finance ISAs once the cash ISA limit is reached.
HMRC has confirmed that the new rules will:
- Prevent transfers from stocks and shares ISAs or Innovative Finance ISAs into cash ISAs.
- Check whether an investment qualifies as a genuine stocks and shares ISA or is considered “cash-like.”
- Potentially introduce charges on interest earned from cash held within stocks and shares or Innovative Finance ISAs.
The draft legislation will be presented to Parliament well ahead of April 2027, and the government will consult with industry experts to ensure the rules are clear.
HMRC Cash ISA Rules:
The budget also mentioned plans for a consultation in early 2026 on a “new, simpler” ISA for first-time homebuyers.
This product will replace the Lifetime ISA and is expected to be more flexible, removing withdrawal penalties and allowing savers to access the government bonus when buying a home, even if circumstances change.
Jason Hollands, managing director of online investment platform Bestinvest, warned that there are still “unanswered questions” about how the reduced £12,000 cash ISA limit will work in practice.
He expressed concerns that HMRC’s proposed charges on cash held in stocks and shares ISAs could act as a “stealth tax” on investors.
He also pointed out that the tests to determine “cash-like” investments could create uncertainty for options such as money market funds or short-dated bonds.
Mr Hollands added that if ISA providers face fees on client cash balances, these costs would likely be passed on to account holders, potentially reducing the attractiveness of some ISA options.
What does this mean for Savers?
For everyday savers, these changes mean more careful planning is required. Still, you’ll need to decide how stylish to resolve the dilemma between cash ISAs, stocks and shares ISAs, if you want to make the most of your ISA allowance.
While the rules may feel stricter, the overall ISA contribution limit remains generous, giving savers plenty of room to invest tax-free.
Keeping an eye on HMRC cash ISA rules, potential charges, and “cash-like” investment definitions will be crucial to avoid surprises, especially given recent updates on the cash ISA limit cut.
