Changes to ISAs from April 2027 and beyond

The government has announced a number of changes, and proposed changes, to Individual Savings Accounts (ISAs) that will take effect on 6 April 2027. The justification for some of these changes is that they will encourage ISA holders to invest rather than just holding cash savings. 

Current savers and investors in ISAs have the opportunity, during the current 2026-27 tax year, to position their ISA portfolios to meet their objectives. 

The government also published a consultation document proposing the withdrawal of the Lifetime ISA for new savers and replacing it with the First Time Buyer ISA, which they say will be a simpler structure. 

So, what is changing? 

The ISA subscription allowance

The overall ISA subscription allowance of £20,000 p.a. remains unchanged but, from 6 April 2027, the Cash ISA subscription allowance for those who will have not attained the age of 65 during the course of the tax year will be limited to £12,000 p.a. meaning that the remaining £8,000 p.a., if utilised, will need to be invested in a Stocks and Shares ISA or Innovative Finance ISA. 

Those who attain the age of 65 during the tax year (or who are already aged 65 or over) retain a maximum Cash ISA subscription allowance of £20,000 p.a. 

Transfer restrictions

From 6 April 2027, ISA holders aged under 65 during the tax year will not be able to transfer from non-Cash ISAs (Stocks and Shares ISAs or Innovative Finance ISAs) to a Cash ISA. Those aged 65 or over during the tax year will be able to continue transferring from non-Cash ISAs to a Cash ISA. 

There are no proposals to restrict transfers from Cash ISAs to non-Cash ISAs. 

Stocks and Shares ISAs and Innovative Finance ISAs 

Anti-circumvention rules will be introduced from 6 April 2027 to discourage cash, or cash-like, holdings from being held in a non-Cash ISA: 

• A universal 22% tax charge will apply to interest accruing on any uninvested cash held in a non-Cash ISA, regardless of the ISA holder’s age or income tax bracket. The 22% tax charge will also apply to ‘alternative finance returns’ such as Sharia-compliant returns. This tax charge cannot be offset against other income tax allowances, such as the Personal Savings Allowance or starting rate tax band. 
  
  ISA holders should look, wherever possible, to hold cash balances in a Cash ISA to mitigate the effects of the 22% tax charge. Whilst those aged 65 or over during the tax year will be able to transfer some, or all, of cash balances accrued during previous years’ non-Cash ISAs to a Cash ISA whilst leaving non-cash assets intact.
   
• Money market funds, which invest in short-term debt securities, are classes as 'cash-like' but are not cash, so returns on them are not subject to the 22% tax charge. However, a separate rule means a Stocks and Shares ISA invested 100% in money market funds will become a non-qualifying investment - so money market funds must only ever form part of a diversified portfolio, not the whole of it.

First Time Buyer ISAs (FTB ISAs) 

The consultation document, published on 23 June, sets out the broad structure of FTB ISAs but does not cover many important aspects such as the levels of subscription limits, the government bonus and the maximum property price. 

Once FTB ISAs are introduced (expected 6 April 2028), Lifetime ISAs (LISAs) will not be available to new savers but existing LISA holders will be able to continue contributing to them under the current rules. LISA holders will also be able to hold a FTB ISA, subject to subscription limits but it will not be possible to transfer from a LISA to a FTB ISA (as the bonus has already been paid on the LISA). The purchase of a first home will be able to be part-funded from savings held in both LISAs and FTB ISAs. 

The withdrawal charge on LISAs is seen to be a significant issue for those wishing to access cash for other than a qualifying home purchase or on attaining age 60 so it is proposed that, under the FTB ISA, the bonus will only be paid when the holder purchases their first home with a mortgage. If cash is withdrawn for other reasons, no bonus will be paid but no withdrawal charge will apply. 

LISA holders receive their bonus a few weeks after they add money to their account, and therefore can benefit from compound growth on the bonuses received. This will not be possible with the FTB ISA as the bonus is only paid when the home is purchased. The bonus will be based on the amounts paid in less any withdrawals, not on any investment growth. It is, however, expected that there will be no upper age limit for a FTB ISA. 

Contributions to LISAs and FTB ISAs will count towards the £20,000 p.a. overall ISA subscription allowance and, if contributed to the Cash versions, towards the £12,000 p.a. Cash subscription allowance for the under 65s. 
We will need to wait for the additional detail to build a full picture on how FTB ISAs will work.

If you or someone you know would like guidance on structuring cash and investments for tax-efficiency, contact us to arrange a free initial consultation.

Arrange a free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The information in the article is based on current laws and regulations which are subject to change as at future legislations. 

The value of your investments can go down as well as up, so you could get back less than you invested.

The information in this article is correct as at 15/07/2026.

The Financial Conduct Authority does not regulate cash advice or tax advice.