ISA Reforms: Changes to Cash and Stocks & Shares ISAs
As part of wider reforms, the Treasury has announced new restrictions to prevent savers from using Stocks & Shares ISAs as a workaround.
From April 2027, ISA changes coming in, include:
- Interest earned on cash held within a Stocks & Shares ISA will be taxed at 22%.
- Annual cash ISA contributions for individuals under the age of 65 will be capped at £12,000.
- Non-Cash ISA’s limit e.g Stocks and Shares ISAs will still be capped at £20,000.
- Transfers from non-cash ISAs into cash ISAs will no longer be permitted.
- Savers will still be able to transfer funds from cash ISAs into investment-based ISAs.
- Investors will also be restricted to holding less than 100% of their stocks and shares Isa in money market funds.
The reforms are expected to generate significant debate among savers and investors in the months ahead, particularly regarding their potential impact on household savings behaviour and retirement planning.
The Government says the reforms are intended to encourage greater participation in long-term investing while maintaining tax-efficient savings opportunities.
However, the proposals have attracted criticism. Shadow Chancellor Sir Mel Stride described the changes as a “double whammy for savers”, arguing that they both reduce tax-free savings opportunities and increase taxation on savings interest.
New First-Time Buyer ISA Introduced
Alongside the ISA reforms, the Treasury has announced a new First-Time Buyer ISA designed to support aspiring homeowners. This aims to provide greater flexibility than previous schemes while continuing to offer meaningful support for those saving towards a first home.
Key features of the new scheme include:
- A 25% Government bonus on qualifying savings.
- No upper age limit for applicants, recognising that many people are purchasing their first home later in life.
- The Government bonus will be paid when savings are used towards the purchase of a property.
- Savers can withdraw funds for other purposes without incurring the previous 25% withdrawal penalty.
- The existing £450,000 property purchase price cap will remain in place.
How is the new First-Time Buyer ISA different to the Lifetime ISA (LISA)
When compared with the existing Lifetime ISA (LISA):
- Bonus timing – LISA pays a 25% bonus annually on contributions, while the new ISA pays the bonus only when buying a property.
- Flexibility – LISA charges a 25% penalty on non-qualifying withdrawals; the new ISA removes this penalty.
- Age rules – LISA is limited to ages 18–39 for opening accounts; the new ISA has no upper age limit.
- House price cap – Both retain a £450,000 cap for property purchases.
What does this mean for savers?
“Of course, we are disappointed to see the 22% interest charge on Stocks and Shares ISAs. This is part of a broader government strategy to encourage more long-term investing and reduce reliance on tax-free cash savings.”
“However, we are pleased to see the introduction of the First-Time Buyer ISA, which addresses some of the shortcomings of the LISA – notably the removal of the age restriction and the withdrawal penalty. That said, with no uplift in the property price cap, it may rule out the option for some buyers in London and the South East”, says Ben.
Need advice on ISA changes or wider tax planning?
If you’re unsure how the changes may affect you, or you’d like tailored tax advice on ISA allowances or broader tax planning, our tax team can help.
Contact our tax team today to discuss your individual circumstances and ensure your savings and investments remain tax-efficient under the new rules.
Specialising in personal tax, Ben advises individuals, families, self-employed workers and sole traders.
