From April 2027, the government is introducing the split ISA allowance, limiting the amount savers can place into Cash ISAs. However, the good news is that the overall annual ISA allowance will remain at £20,000.
Currently, you can put your entire £20,000 annual allowance into a Cash ISA, a Stocks and Shares ISA or both.
Under the new split ISA allowance:
| Under 65 | You can save up to £12,000 annually in a Cash ISA |
| 65 and over | You can continue saving up to £20,000 annually in a Cash ISA |
| Overall ISA allowance | Everyone will retain the £20,000 annual allowance |
| Stocks and Shares ISAs | You can still invest up to £20,000 annually (subject to your overall allowance) |
Most importantly, the government is not forcing anyone to specifically invest £8,000. Instead, it is simply limiting how much savers can contribute to Cash ISAs.
Why the Government Split the ISA Allowance
The government wants to encourage more people to invest their savings rather than keep everything in cash. Cash ISAs remain popular because they offer stability and straightforward access to savings. However, they do not always provide the strongest long-term returns.
For example: Inflation can reduce your money’s spending power when prices rise faster than your savings grow.
Stocks and Shares ISAs offer greater potential for long-term growth. However, investments carry risks and their value can fall as well as rise. Therefore, the government hope the new split ISA allowance will encourage savers to consider both options.
The changes also aim to support investment across the wider UK economy.
How the Split ISA Allowance Will Affect Your Savings
The changes will affect savers differently, depending on their age, saving habits and financial goals.
Cash ISA Savers Under 65
From April 2027, you can only contribute £12,000 annually to Cash ISAs. You could then invest the remaining £8,000 through a Stocks and Shares ISA. Alternatively, you could keep the additional cash in a standard savings account. However, you may need to pay tax on some interest outside an ISA.
Savers Aged 65 and Over
From April 2027, anyone aged 65 and over can continue placing up to £20,000 annually into Cash ISAs. Additionally, the exemption starts at the beginning of the tax year in which you turn 65.
People Considering Stocks and Shares ISAs
A Stocks and Shares ISA allows you to invest in assets such as company shares and investment funds. Furthermore, you will not normally pay Income Tax or Capital Gains Tax on investment returns within your ISA.
However, investing is not suitable for everyone. Markets can fluctuate and you could receive less money than you originally invested.
What Happens to Your Existing Cash ISA Savings
You do not need to worry about losing your existing Cash ISA allowance. The changes will not reduce your existing Cash ISA balance or remove its tax-free benefits.
The new £12,000 limit only affects new contributions from 6 April 2027. Any money you already hold in Cash ISAs can remain there. Additionally, your existing savings can continue earning tax-free interest.
For instance, you might already have £50,000 across several Cash ISAs. You can keep that money within your accounts. However, the new annual contribution limits will apply from April 2027.
New ISA Transfer Rules
The government is also introducing new rules covering transfers between different ISA types.
From April 2027, savers under 65 will not be able to transfer money from Stocks and Shares ISAs into Cash ISAs. However, they can still transfer money from Cash ISAs into Stocks and Shares ISAs. They can also continue transferring savings between Cash ISA providers.
Additionally, providers will face a 22% charge on interest they pay on cash held within investment ISAs. These measures aim to prevent savers from using investment accounts to avoid the lower Cash ISA limit.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.