Up until now, ISAs have maintained their position as the go-to vehicle for tax-free saving and investing. However, even ISAs haven’t escaped the ever-changing tax landscape.
These attractive wrappers have long been regarded as simple, straightforward and reliable – we all knew where we stood.
So What’s Changing?
The two main changes that are coming our way in April 2027 are:
1. The amount you can put into a Cash ISA each year is coming down from £20,000 to £12,000 – but only if you’re under 65.
The £20,000 Stocks & Shares ISA allowance isn’t changing. So, if you’re saving less in cash, you’ll simply have more room to put into a Stocks & Shares ISA instead.
If you’re 65 or over, none of this affects you. You’ll keep the full £20,000 Cash ISA allowance, and that entitlement kicks in from the start of the tax year in which you turn 65.
Know someone who is under 65 and doesn’t know where to invest their savings now these changes are coming into force? We’d be happy to speak with them and guide them in the best possible way.
2. You can’t hold an entire Stocks & Shares ISA in cash-like assets.
From April 2027, “cash-like” specifically means money market funds, which are a type of fund that only invests in cash or cash equivalents. You can still hold some, just not your whole portfolio in these funds.
From what we know so far, any interest earned on cash within a Stocks & Shares ISA will be charged at a flat rate of 22% from April.
The Government’s aim with this is to encourage more people to invest rather than leave large sums sitting in cash.
What this means for you
For most of our clients, particularly those within our Discretionary service held on the 7IM platform, these changes won’t make much practical difference.
We handle all of the investments, including cash levels, internally and will have rules in place to prevent excessive cash weightings. Importantly, this does not mean taking unnecessary investment risk. It means ensuring cash is held deliberately and appropriately within the portfolio.
If you do hold a Cash ISA and typically pay in close to the full £20,000 allowance each year, the April 2027 changes are worth bearing in mind.
You do not need to take action now, as the Government is still consulting on the detail, but it would be sensible to start thinking about where that excess allowance may be directed in future.
What happens next
A technical consultation is expected to begin shortly, with more detail and clarification due in the Autumn Budget. We’ll keep you updated as this detail is finalised.
If you’d like to talk through what this means for your own ISA holdings, please get in touch with your usual adviser. We’re here to help you think it through ahead of the April 2027 start date.
