In the last Autumn Budget, Rachel Reeves announced a plan to reduce cash ISA allowances in order to encourage people to invest rather than use cash to save for the long term. These come into effect in under 10 months time on the 6th April 2027. It’s not just the contribution allowance for cash ISAs that will be changing as there are also some other amendments planned and we wanted to cover what these are.
What will the new cash ISA allowance be?
For the 2027/28 tax year the cash ISA allowance will be reduced to £12,000 for those under 65. For those over 65, the cash ISA allowance is unchanged at £20,000. The limit for stocks & shares ISAs and Innovative Finances ISAs will remain at £20,000 per year.
Junior ISAs are not being touched so cash and stocks & shares Junior ISA allowances will remain at £9,000 per year.
What other ISA changes are happening?
The government is introducing some other changes to, in their words, ‘protect the integrity of the new cash ISA limit and ensure the reforms achieve their intended aim of encouraging retail investment’. Basically they want to stop people finding a way around the rules through putting cash into a stocks and shares ISA. These changes are:
22% Charge on interest paid on cash held in non cash ISAs
A flat rate charge of 22% is being introduced that will apply to any interest or alternative finance return paid on cash held within a non cash ISA. The government has said this is to discourage investors from keeping long-term cash holdings. This charge will be deducted and paid by ISA providers to the HMRC so individuals do not need to declare the interest in their tax returns.
This will not have much impact on Beanstalk as investor’s money is not held in cash within the Beanstalk ISA account except for the short time after contributions are paid in and before they are invested and vice-versa when people are making withdrawals.
Investors will not be allowed to hold 100% of investments in cash-like assets
Some assets, such as Money Market Funds, are very similar to cash savings. From 6th April, individuals with non cash ISA accounts such as stocks & shares ISAs will not be allowed to hold 100% of their investments in these cash-like assets.
We are still waiting on confirmation on what the maximum percentage holding in Money Market Funds will be. Once we know, we will tweak the allocation process within the Beanstalk app accordingly.
Restrictions on transfers into cash ISAs
Transfers from non cash ISAs to cash ISAs will no longer be permitted, however the reverse will, so transfers from cash ISAs to non cash ISAs will still be allowed.
Beanstalk offers a stocks & shares ISA and we make the transfer process really simple. If you have an account you wish to transfer you can do so by signing up to Beanstalk and completing our short transfer form. Once you have returned it to us, we take care of the rest.
Application to those 65 and over
Those over 65 will still have the £20,000 ISA limit for cash ISAs but the other changes (ie 22% charge on interest and ban on 100% of investments in money market funds) will apply.
It is important to note that none of these changes apply to Junior ISAs.
We will keep this article updated when and if more information is released on these amendments.