ISA Reform 2027: What the New Anti-Circumvention Rules Mean for Savers

The government used the Autumn Budget 2025 to announce a significant tightening of ISA rules. The headline change — a reduced Cash ISA allowance for most savers — is paired with a new flat-rate charge on cash sitting inside non-Cash ISAs, a stricter definition of what qualifies as a Stocks and Shares ISA, and new restrictions on certain transfers. HMRC published a factsheet in 2025 setting out the detail. Here is a plain-English walkthrough of everything that changes on 6 April 2027.

The Context: Why These Rules Are Being Introduced

ISAs have always been divided into distinct types: Cash ISAs for straightforward savings and non-Cash ISAs (primarily Stocks and Shares ISAs) for investment holdings. For several years the government has been concerned that savers were using Stocks and Shares ISAs as an alternative home for cash — either by holding Money Market Funds exclusively or by letting cash languish in an investment ISA wrapper rather than deploying it into actual investments.

The 2027 reforms are explicitly framed as anti-circumvention measures. Their stated aim is to redirect the Cash ISA tax benefit towards genuine investment, while preserving the full £20,000 overall ISA allowance for savers who do put money to work in the markets. They do not change the total ISA subscription limit, and they do not affect the Junior ISA allowance or the Lifetime ISA.

If you want to model how these changes interact with your own savings and investment plan, Wealth365’s financial planning tools let you map your current ISA holdings, run projections forward, and identify which wrapper makes the most sense for each element of your strategy.

The New £12,000 Cash ISA Limit for Under-65s

From the start of the 2027/28 tax year — 6 April 2027 — the maximum you can subscribe to a Cash ISA each year will fall from £20,000 to £12,000 if you are under 65. The overall annual ISA subscription limit remains at £20,000. This means the remaining £8,000 of headroom will need to go into a non-Cash ISA (such as a Stocks and Shares ISA or an Innovative Finance ISA) if you want to use your full allowance.

In practice, savers who already split their allowance across both wrappers may notice little change. Those who have historically put their entire £20,000 into a Cash ISA will need to rethink their approach: either accept using only £12,000 of their annual allowance, or deploy the remaining £8,000 into an investment wrapper.

Turning 65? You Retain the Full £20,000 Cash ISA Allowance

Savers aged 65 and over are exempt from the reduced limit. From the beginning of the tax year in which you turn 65, you can continue to subscribe up to £20,000 to a Cash ISA each year. The age exception applies from the first day of that tax year, so you do not need to wait until your actual birthday to benefit from the higher limit.

The rationale is straightforward: older savers often have a legitimate preference for capital preservation over investment risk, and requiring them to hold a portion of their ISA allowance in equities or funds would be contrary to sound financial planning principles for many in that group. The government’s exemption acknowledges that distinction.

The 22% Charge on Cash Inside a Non-Cash ISA

The most technically complex part of the reforms is a new 22% flat-rate charge that will apply to interest — or, in the case of Shariah-compliant arrangements, alternative-finance returns — paid on cash held inside a non-Cash ISA. Under the existing rules, cash held in a Stocks and Shares ISA accrues interest free of tax in the same way as any other ISA income. From 6 April 2027, that exemption will no longer apply to cash balances within a non-Cash ISA.

The charge is designed to deter investors from treating their Stocks and Shares ISA as a high-yield savings account. If you hold significant cash in an investment ISA — for example, proceeds from a recent sale waiting to be reinvested, or a cautious reserve buffer — that cash will generate a 22% tax charge on any interest it earns after the start date. The charge is flat-rate and does not vary with your marginal tax band.

The practical implication: cash held inside a Stocks and Shares ISA for any extended period will cost you more than it did before. Active reinvestment, or holding genuine cash savings in a Cash ISA instead, becomes more important.

What Counts as 'Cash-Like'? Money Market Funds Only

Alongside the interest charge, HMRC has introduced a new qualifying test for non-Cash ISAs. A non-Cash ISA whose portfolio is composed entirely of cash-like assets will become non-qualifying — meaning subscriptions to it will no longer attract ISA tax relief.

For the purposes of this test, only Money Market Funds (MMFs) are classified as cash-like assets. MMFs are permitted inside a non-Cash ISA as part of a diversified allocation, but a portfolio holding nothing else will fail the qualifying test. The key phrase in the legislation is “100% cash-like”: a single holding of any non-cash-like asset alongside an MMF will bring the ISA back within the qualifying rules.

Assets that are explicitly not cash-like include:

• Shares (including UK equities and international equities)
• Investment funds and unit trusts
• Investment trusts
• Exchange-traded funds (ETFs)
• Corporate bonds
• Government bonds, including UK gilts

In other words, the vast majority of conventional investment holdings are unaffected. The non-qualifying test is narrow and targeted: it catches only portfolios that consist of MMFs and nothing else. ISA providers will be expected to implement safeguards to prevent non-Cash ISAs from tipping into a non-qualifying state.

Transfer Restrictions: The Route From Stocks and Shares to Cash ISA Closes

Under the current rules, savers can transfer ISA balances freely in either direction: Cash to Stocks and Shares, or Stocks and Shares back to Cash. From 6 April 2027, transfers from a non-Cash ISA into a Cash ISA will no longer be permitted. The reverse direction — moving money from a Cash ISA into a non-Cash ISA — will still be allowed.

This is a significant change for anyone who has built up a Stocks and Shares ISA and might have considered consolidating some or all of it into a Cash ISA at a later stage — for example, ahead of retirement to reduce investment risk. After April 2027, that option will be closed to under-65s.

The transfer restriction is disapplied for savers aged 65 and over, consistent with the wider age exemption across the reforms. If you are 65 or older, you retain the freedom to transfer in both directions.

For savers who are thinking about their retirement income strategy and how to de-risk an investment ISA over time, speaking to a regulated financial adviser before April 2027 may be worthwhile, particularly if a non-Cash to Cash ISA transfer forms part of your current plan.

What This Means for Your Planning

The reforms will affect different savers in different ways. For most people who invest through a Stocks and Shares ISA and use a Cash ISA only for shorter-term savings, the practical impact will be modest. The main pressure points are:

• Savers who max out their Cash ISA each year — you will have £8,000 of unused allowance unless you open or top up a Stocks and Shares or other non-Cash ISA.
• Investors holding large cash balances inside a Stocks and Shares ISA — the 22% charge on any interest those balances earn makes extended cash-parking materially more expensive.
• Anyone planning a future non-Cash to Cash ISA transfer — that option disappears for under-65s on 6 April 2027; action before the start date may be worth considering.
• Stocks and Shares ISA investors holding only Money Market Funds — a single additional qualifying holding (shares, ETFs, bonds, or any other non-cash-like asset) is all that is needed to keep the ISA qualifying, but pure MMF portfolios will need to diversify.

You can use our scenario and projection tools to model how a split between Cash and non-Cash ISA contributions would look over time under your specific income and savings profile.

Next Steps and Timeline

The government has confirmed the following timeline:

• Technical consultation — A consultation on the draft legislation was launched following the Autumn Budget 2025, giving industry and individuals the opportunity to comment on the detailed design of the rules.
• Regulations laid in Autumn 2026 — The secondary legislation underpinning the reforms is expected to be laid before Parliament in Autumn 2026.
• In force 6 April 2027 — All the changes described in this article take effect from the first day of the 2027/28 tax year.

Between now and April 2027, the rules that apply to your ISA subscriptions and transfers remain unchanged. The current £20,000 Cash ISA allowance, full transfer flexibility, and the absence of any charge on cash within a non-Cash ISA all continue until that date.

Whether you want to review how much of your allowance is currently going into cash versus investments, explore the transfer implications, or simply understand where your ISA fits within your wider financial plan, now is a good time to get a clear picture before the rules change.