Households that regularly place more than £12,000 a year into Cash ISAs will face new restrictions from April 2027, when the annual cash limit is reduced from £20,000. The wider ISA allowance will remain at £20,000, but £8,000 of that amount will be reserved for investments rather than cash.
The change was announced by former Chancellor Rachel Reeves and is set to take effect under Prime Minister Andy Burnham. According to reports, the new Exchequer, John Healey, intends to retain the reforms despite the change in government leadership. State pensioners will be exempt from the lower cash limit and will continue to have access to the full £20,000 annual Cash ISA allowance.
Cash ISA Deposits Will Be Capped at £12,000
Under the new system, savers will still be able to place up to £20,000 each tax year into ISAs without paying tax on returns generated within those accounts. What changes is the amount that can be held in cash: only £12,000 of the annual allowance will be available for Cash ISAs, with the remaining £8,000 designated for investments through products such as Stocks and Shares ISAs.
According to reports, Reeves announced the reform in her Autumn Budget after a period of speculation over possible reductions to the Cash ISA allowance. Earlier reports had suggested that the cash limit could fall as low as £10,000, although the final figure was set at £12,000.
The reform does not affect money already held in Cash ISAs. Instead, it changes how much savers can deposit into such accounts during each tax year from April 2027. Those who normally put more than £12,000 into cash-based ISAs would therefore need to use other options for additional savings if they wished to retain the full £20,000 annual ISA allowance.
Money held outside an ISA can generate taxable interest once a saver exceeds the Personal Savings Allowance. The allowance permits basic-rate taxpayers to receive up to £1,000 in savings interest without tax, while the figure falls to £500 for people earning more than £50,270 and to £0 for those earning above £125,140.
State Pensioners Will Retain the Full Cash Allowance
A separate exemption will apply to state pensioners, who will continue to be allowed to place the full £20,000 annual ISA allowance into cash. Reeves said in her Budget speech that the reform would keep the overall allowance unchanged while designating £8,000 exclusively for investment, with over-65s retaining the full cash allowance. The distinction is not identical to state pension eligibility not everyone over 65 is currently a state pensioner because the state pension age is 66 and is due to rise to 67.
Reeves also announced that online investment hubs would be created to help people invest in Britain. She told MPs that more than half of the ISA market, including Hargreaves Lansdown, HSBC, Lloyds, Vanguard and Barclays, had signed up to launch the hubs.
The new Cash ISA rules are scheduled to begin in April 2027. The £20,000 overall ISA allowance will remain in place, while the amount that most savers can allocate specifically to cash will fall to £12,000.
