The government's programme of ISA reform — announced in the Autumn Budget 2025 and set out HMRC publications of 23 and 24 June 2026 — represents the most significant structural change to the ISA regime in several years. A consultation on the draft regulations is underway closes on 2 August 2026.
Two sets of changes are proposed to 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 and there is no clear date for implementation.
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 non-cash 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.
The charge applies only to interest (or the alternative finance equivalent) arising on cash. it does not apply to returns generated by qualifying investments such as shares, bonds, funds, ETFs or Money Market Funds. The distinction is important: only the interest on cash itself is in scope.
The charge will be collected by the ISA manager and remitted to HMRC. Note – the charge applies irrespective of the client's age.
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
ISA managers will need to take action if the non-cash component of a Stocks and Shares ISA is invested entirely in "cash-like" assets. Under the current draft regulations, Money Market Funds (MMFs) are the only investments treated as 'cash-like' assets.
If 100% of the non-cash element is invested in MMF, the MMF becomes non-qualifying, and the ISA manager will need to contact the investor to rectify the position (either by arranging a sale of the MMF or a transfer of the MMF out of the ISA).
3. The Transfer restriction
From 6 April 2027, transfers from a Stocks and Shares ISA (and Innovative Finance ISAs) into a Cash ISA will be prohibited for individuals aged under 65. This is a significant 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 | Proposed Effective Date |
|---|---|---|
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 | Money Market Funds (MMF) become non-qualifying investment in a Stock and Shares ISA if they represent 100% of the non-cash component. | 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.