The government's programme of ISA reform — announced in the Autumn Budget 2025 and confirmed in HMRC publications of 23 and 24 June 2026 — represents the most significant structural change to the ISA regime in several years.
Two sets of changes take effect on 6 April 2027: a reduction in the Cash ISA subscription limit for clients aged under 65, and a package of anti-circumvention rules targeting cash held within Stocks and Shares ISAs.
A third change — the replacement of the Lifetime ISA with a new First Time Buyer ISA — is at consultation stage although there is no clear date for implementation. Next month’s update will explore these proposals in more detail.
The Cash ISA subscription limit reduction
From 6 April 2027, the annual Cash ISA subscription limit for individuals aged under 65 will reduce from £20,000 to £12,000. The overall ISA allowance remains unchanged at £20,000 — so the practical effect is that under-65s can subscribe up to £12,000 to a Cash ISA and use the remaining £8,000 allowance in a Stocks and Shares ISA or other ISA type in the same tax year.
Clients aged 65 and over are treated more favourably. The £20,000 Cash ISA limit applies to those aged 65 and over from the start of the tax year in which they turn 65 — so a client who turns 65 at any point during 2027/28 benefits from the full £20,000 limit for the entire year.
Anti-circumvention rules: Stocks and Shares ISAs
The government's concern is that investors could use the Stocks and Shares ISA to hold cash instead of the Cash ISA, effectively circumventing the lower Cash ISA limit. Three measures are being introduced to counter this, all effective from 6 April 2027.
1. The 22% charge on cash interest
A flat-rate 22% charge will apply to interest — or the Sharia-compliant equivalent (alternative finance return) — earned on cash held within a Stocks and Shares ISA.
It does not apply to returns generated by funds, shares, bonds, ETFs — or to returns from Money Market Funds held as part of a diversified portfolio. The distinction is important: only the return on cash itself is in scope.
The charge will be collected by the ISA manager and remitted to HMRC. The precise collection mechanism will be confirmed when draft legislation is published in Autumn 2026. Note – the charge applies irrespective of the age of the client.
An obvious action point here is to review clients with material cash balances in their Stocks and Shares ISA. Discuss whether investing that cash, moving it to a Cash ISA (before the April 2027 deadline — see below), or accepting the charge is the right course of action.
2. The prohibition on 100% cash-like portfolios
A Stocks and Shares ISA portfolio invested entirely in "cash-like" assets will become a non-qualifying investment from 6 April 2027. For now, "cash-like" assets are defined as Money Market Funds (MMFs) only — individual shares, OEICs, unit trusts, investment trusts, ETFs, gilts, and corporate bonds are all explicitly excluded from the definition.
Partial MMF allocations remain perfectly acceptable. This rule only applies where the entire ISA is held in MMFs. Where an ISA manager identifies a wholly cash-like portfolio, they must support the investor to either reinvest within the ISA wrapper or remove the assets from it.
3. The Transfer restriction
From 6 April 2027, transfers from a Stocks and Shares ISA into a Cash ISA will be prohibited for individuals aged under 65. This is a significant and permanent restriction. Transfers from a Cash ISA into a Stocks and Shares ISA will continue to be permitted without restriction.
Individuals aged 65 and over are exempt from the transfer restriction, from the start of the tax year in which they turn 65.
This creates a valuable but time-limited planning opportunity. Under the current rules, clients can transfer freely from a Stocks and Shares ISA to a Cash ISA. After 5 April 2027, that route closes for under-65s. Importantly, ISA transfers do not count against the annual subscription limit — so a client could transfer their entire Stocks and Shares ISA cash balance into a Cash ISA before the deadline, avoiding the charge that would otherwise apply to the interest from April 2027.
Summary of key rules
Rule | Detail | Effective |
|---|---|---|
Cash ISA limit (under 65) | Reduced from £20,000 to £12,000 per annum | 6 April 2027 |
Cash ISA limit (65 and over) | £20,000 — applies from start of tax year the individual turns 65 | 6 April 2027 |
22% charge on S&S ISA cash interest | Flat-rate charge on interest (and Sharia-compliant equivalent) on uninvested cash in a non-cash ISA. Does not apply to fund or MMF returns. | 6 April 2027 |
100% cash-like portfolio | Portfolios held solely in Money Market Funds(MMF) become non-qualifying. Partial MMF allocations remain permitted. | 6 April 2027 |
Transfer restriction (under 65) | Transfers from Stocks and Shares ISA to Cash ISA prohibited for under-65s. | 6 April 2027 |
Transfer restriction (65 and over) | Exemption applies — Stocks and Shares to Cash ISA transfers remain permitted for those aged 65+ from start of relevant tax year. | 6 April 2027 |
Overall ISA allowance | Unchanged at £20,000 | — |
All information is based on our understanding and interpretation of applicable law and regulation which is subject to change. Tax treatment depends on individual client circumstances and may change in the future.