UK government to reduce Cash ISA allowance for under-65s

The UK government is set to implement significant changes to Individual Savings Account (ISA) rules starting in April 2027. For individuals under the age of 65, the annual Cash ISA allowance will be reduced from £20,000 to £12,000. While the total ISA limit across all types remains at £20,000, savers will be required to direct any remaining funds into Stocks and Shares ISAs to utilize their full allowance.

New regulations will also prohibit under-65s from transferring funds from Stocks and Shares ISAs into Cash ISAs, a move intended to prevent investors from bypassing rules. Additionally, the government plans to replace the Lifetime ISA with a new ‘First Time Buyer ISA’. Critics have noted that while the Lifetime ISA has flaws, such as the 25% withdrawal charge and a frozen £450,000 property purchase limit, the proposed replacements lack sufficient detail.

The Treasury is expected to publish final details on these changes in the autumn, potentially ahead of the Chancellor's budget. Industry groups, including the Building Societies Association, have noted that the new Chancellor faces a choice between proceeding with these complex changes or scrapping them.