Cash ISA reform 2027: simple rules, tricky details

Or… when a “simple tweak” starts to look anything but! ISAs have always been sold as simple – tax-free, flexible, and easy to explain.

That may be about to get… slightly less simple.

From 6 April 2027, under-65s will see a new £12,000 limit on Cash ISAs. The overall £20,000 allowance remains unchanged¹.

At the same time, a new 22% charge on cash held within investment ISAs is set to steer behaviour in a very particular direction².

The goal? Encourage long-term investing.
The risk? Turn a simple story into something that needs a whiteboard.

A quick reminder of the current rules

Right now, things are refreshingly straightforward:

• £20,000 annual ISA allowance¹
• Split it however you like across cash and investments
• No tax on income or gains

Simple enough to explain in a sentence – which is part of the appeal.

What’s changing

From the 2027/28 tax year:

• Under-65s can only put £12,000 into Cash ISAs²
• The remaining allowance must go into Stocks & Shares or Innovative Finance ISAs

This sits firmly within the Treasury’s broader push to encourage retail investing and economic growth².

So far, so logical. Then comes the bit advisers are already debating…

The “22% thing” – and why it matters

To stop clients side-stepping the new limits, HMRC is introducing:

• A 22% charge on interest earned on cash holdings held inside investment ISAs²

Yes – a tax charge inside something we’ve all spent years calling “tax-free”.

From an adviser’s perspective, that raises a few practical wrinkles:

• Cash buffers in portfolios – still useful, now less neat
• Platform cash accounts – could trigger charges if left unattended
• Short-term allocations – may need tighter oversight

None of this breaks ISAs. But it does mean cash is no longer the neutral, default holding it once was.

And there’s more.

Under-65s will also:

• Be unable to transfer from investment ISAs back into Cash ISAs²
• Face limits on holding cash-like funds (e.g. money market funds)²

In short: if it looks like cash and behaves like cash, expect scrutiny.

Behaviour change… or behaviour nudge?

In theory, these rules should encourage investing.

In practice, behaviour tends to be… human.

Advisers might reasonably expect:

• Clients holding more cash outside ISAs instead
• A bit more decision friction – especially near tax year-end
• Extra questions around fairness and logic

And likely a few conversations that start with:
“Can you just explain that bit again?”

What about over-65s?

For those aged 65 and above, existing rules broadly stay in place².

This suggests the government recognises:

• Risk tolerance changes over time
• Time horizon matters

That makes sense in theory – but adds another layer to explain in practice.

Market reaction – polite, but cautious

Industry feedback so far has been lukewarm.

Concerns include:

• ISAs becoming more complex to explain³
• The introduction of tax into a tax-free product³
• The risk of putting clients off entirely³

As the lang cat put it, there’s a concern these changes could make ISAs “more complex” and potentially discourage use instead of encouraging it⁴.

Which isn’t quite the intended outcome.

What this means in real life

For advisers, the real impact will show up in conversations and planning decisions:

• Reviewing cash levels within portfolios
• Rethinking where short-term money sits
• Helping clients stay focused on long-term goals, not short-term rule changes

And perhaps most importantly:

• Keeping the message clear, confident and simple, even when the rules aren’t.

A final thought

ISAs aren’t broken. But they’re no longer quite as clean and simple as they once were.

And while nuance is great for policymakers, clients tend to prefer:
“Just tell me what to do.”

We’re here to help

Your 7IM Intermediary team is here to help you work through these changes and what they mean for your clients.

If you’d like to talk through scenarios – or sense-check your approach – get in touch in the usual way.

Important information

This article is for information only and isn’t financial, tax or investment advice. Tax treatment depends on individual circumstances and may change in future.

The information is based on current legislation and HMRC and Treasury announcements as at July 2026 and could change before implementation.

Investments can fall as well as rise in value, and clients may get back less than they invest.

Sources

¹ HMRC Tax-free savings newsletter 19 — November 2025 - GOV.UK
² HMRC ISA reform 2027: anti-circumvention rules factsheet - GOV.UK
³ Reeves' new tax charge on cash ISAs faces fierce industry backlash and Cash Individual Savings Account: Government Response
⁴ The lang cat consulting, response to HMRC ISA reform proposals, June 2026.