HMRC ISA Tax Changes 2027: What You Need to Know

Quick answer: From 6 April 2027, the Cash ISA allowance drops from £20,000 to £12,000 for anyone under 65. A new 22% tax charge will apply to interest earned on cash held inside a non-Cash ISA, including Stocks and Shares ISAs and Innovative Finance ISAs. The overall ISA allowance stays at £20,000. These are the biggest ISA rule changes since 2014, and if you're a business owner, self-employed, or manage your own savings, you need to know how they affect you.

Here's a number that surprised most people when it came out: more than 7 to 8.6 million UK adults hold over £10,000 in cash savings, according to the Treasury's report on August 17, 2026. That's what Treasury research found, and it's a big part of why Chancellor Rachel Reeves announced sweeping ISA changes at the 2025 Autumn Budget.

The new ISA rules land on 6 April 2027, the start of the new ISA year, and they're already generating serious debate. HMRC clashes with young investors over ISA rules have been widely covered in the financial press, with critics arguing the reforms add complexity rather than encourage genuine investment. But whether you're for or against them, one thing is clear: if you have an ISA, you need to understand what's changing before the new ISA year kicks in.

This guide breaks down every key change, answers the questions we keep seeing from self-employed people and SME owners, and tells you what to do with that information.

Key Takeaways

• Cash ISA limit falls to £12,000 for under-65s from 6 April 2027
• 65 and over? No change. You keep the full £20,000 Cash ISA allowance
• Overall ISA allowance stays at £20,000 across all ISA types
• 22% charge on interest earned from cash held in a Stocks and Shares ISA
• You can no longer transfer a Stocks and Shares ISA into a Cash ISA (if you're under 65)
• Money Market Funds can still be held in a Stocks and Shares ISA - but not as 100% of the portfolio
• The 2026/27 tax year is the last full year under the old rules. Act accordingly.

What Are the New ISA Rules from April 2027?

The changes apply to new contributions from 6 April 2027. Any money already sitting in your Cash ISA remains protected and continues to earn tax-free interest.

Why Is HMRC Making These Changes?

The government's argument is straightforward: too many people are parking long-term wealth in cash, where inflation quietly erodes its value. Research cited by the Treasury showed that cash ISA savers have historically earned just one-seventh of the real returns that Stocks and Shares ISA investors receive over the long term.

As part of the "Invest for the Future" initiative announced at the 2025 Autumn Budget, Chancellor Reeves wants to nudge savers, particularly younger ones, toward the stock market. The cash ISA limit cut is the stick. The aim is to push at least £8,000 of the annual ISA allowance into investment-type accounts for under-65s.

Critics, including Rachel Vahey of AJ Bell, have called the reforms "riddled with unintended consequences." The Chair of the Treasury Committee, Dame Meg Hillier, has also expressed concern that the changes risk confusing consumers rather than helping them. These are legitimate concerns and worth factoring into your planning.

Are Cash ISAs Going to Be Taxed?

No. Cash ISAs themselves are not being taxed. Interest earned inside a Cash ISA remains completely tax-free. What changes is how much you can put into one: from 6 April 2027, if you're under 65, your annual Cash ISA limit drops to £12,000.

The 22% tax charge applies only to interest earned on cash held inside a Stocks and Shares ISA, not to a Cash ISA itself. So if you keep your money in an actual Cash ISA, your interest is still 100% tax-free.

Are ISAs Going to Be Taxed?

Partially, yes, but only in one specific circumstance. From 6 April 2027, HMRC will impose a flat 22% charge on any interest generated by cash sitting inside a Stocks and Shares ISA. This is being introduced to stop people from using their full £20,000 Stocks and Shares ISA allowance purely as a high-rate cash savings vehicle.

Shares, funds, bonds, ETFs, investment trusts, and UK gilts held inside a Stocks and Shares ISA are not affected. Capital gains and income from investments remain tax-free.

The 22% rate is not arbitrary. It aligns with the new basic rate of tax on savings income outside of ISAs, which rises from 20% to 22% from the 2027/28 tax year. What's important to note, and what has caused concern among investors, is that this flat rate applies regardless of your income tax bracket. Basic rate, higher rate, and additional rate taxpayers all pay the same 22%.

How Much Can You Have in an ISA Before Being Taxed?

Under current rules (up to 5 April 2027), there is no limit on how much you can hold in an ISA, only on how much you can contribute each year. Once money is in an ISA, all interest, dividends, and capital gains remain tax-free, regardless of the total pot size.

From 6 April 2027, that remains broadly true, with one exception. If you hold uninvested cash inside a Stocks and Shares ISA and it earns interest, that interest will be charged at 22%. There is no minimum threshold. Any interest earned on cash in a Stocks and Shares ISA becomes taxable under the new rules.

The practical takeaway: keeping long-term cash inside a Stocks and Shares ISA will cost you from April 2027. If you want tax-free interest on savings, a Cash ISA (up to £12,000 per year if you're under 65) remains the right tool.

Can I Give My Wife (or Husband) £20,000 to Put in an ISA?

Yes. Each UK adult has their own ISA allowance, and you can freely give money to your spouse or civil partner for them to put into their own ISA. There are no gift tax implications between spouses in the UK.

From 6 April 2027, the practical picture looks like this:

So between a couple, up to £40,000 a year (£24,000 combined into Cash ISAs if both are under 65) can still be sheltered from tax inside ISAs. This is often an underused option for self-employed people and business owners managing household wealth alongside business income.

Does HMRC Know If You Have an ISA?

Yes. ISA managers, banks, building societies, and investment platforms report directly to HMRC each year via a statistical return. HMRC receives data on the value of each ISA held. You do not need to declare ISA interest or gains on a Self Assessment tax return, but HMRC does hold records.

One important point from 6 April 2027: ISA managers will be responsible for paying the 22% charge on cash interest within Stocks and Shares ISAs directly to HMRC on your behalf. You will not need to declare this yourself. But it will be deducted from your account so it directly reduces the interest you receive.

What Does This Mean for Business Owners and the Self-Employed?

If you're self-employed or run an SME, ISAs sit alongside your business tax obligations, not instead of them. A few things worth considering:

• Personal savings allowance changes. From April 2027, the basic rate of tax on savings interest outside ISAs rises to 22%. Higher rate taxpayers face 42%. If you have cash savings outside an ISA and you're already paying tax on that interest, the ISA wrapper becomes even more valuable.
• Maximise this year's allowance. The 2026/27 tax year, the one running now, is the last full year where you can put up to £20,000 into a Cash ISA. If you have the cash and haven't used your allowance, now is the window.
• Dividend tax is already higher. From April 2026, basic rate dividend tax rose to 10.75% and higher rate to 35.75%. If you extract profits from your limited company via dividends and reinvest them, keeping those funds inside a Stocks and Shares ISA (invested, not in cash) continues to make strong tax sense.
• Don't confuse personal and business finances. ISAs are personal savings vehicles only. They have no bearing on corporation tax, VAT, or any business-level tax obligations.

TL;DR: The ISA Changes in 2027

• Under 65? Your Cash ISA limit drops to £12,000 from 6 April 2027. The new ISA year starts on that date, and the old rules apply until then.
• Cash in a Stocks and Shares ISA? Interest on that cash will be taxed at 22% from April 2027.
• Over 65? Nothing changes for you; the £20,000 Cash ISA limit remains.
• Transferring ISAs? You can still move Cash ISA money into a Stocks and Shares ISA. But you cannot move a Stocks and Shares ISA into a Cash ISA if you're under 65.
• Giving money to a spouse? Still completely fine; each person keeps their own allowance.
• Does HMRC know you have an ISA? Yes, your provider tells them.

Frequently Asked Questions

What is the Cash ISA allowance for 2026/27?

The Cash ISA allowance for 2026/27 is still £20,000; the new £12,000 limit does not apply until 6 April 2027. Use your full allowance now if you want to maximise tax-free cash savings before the new ISA rules come in.

Can I still hold money market funds in a Stocks and Shares ISA after April 2027?

Yes, but not as your only holding. From 6 April 2027, money market funds are classified as "cash-like assets" and cannot make up 100% of your Stocks and Shares ISA portfolio. Hold them alongside other qualifying investments, shares, funds, ETFs, bonds and you remain within the rules.

Will the 22% charge on cash in a Stocks and Shares ISA affect me if I just sell an investment and wait?

This is one of the most-discussed concerns about the new ISA rules. If you sell an investment and your proceeds sit in cash within your Stocks and Shares ISA while you decide where to reinvest, any interest earned during that period will technically be subject to the 22% charge. ISA managers, not you personally, pay this to HMRC. The amount depends on how much interest accrues and for how long.

Do the new ISA rules apply to Junior ISAs?

No. The Junior ISA allowance (£9,000 per year) and rules remain unchanged.

What happens to an existing Cash ISA I already have?

Any money already saved in a Cash ISA before 6 April 2027 is unaffected. It stays tax-free and continues to earn interest under existing protections. The new limit only applies to new contributions made from 6 April 2027 onwards.

Is the new First-Time Buyer ISA relevant to me?

The government has announced a new First-Time Buyer ISA, expected to launch in April 2028, replacing the Lifetime ISA. It's aimed at anyone aged 18 or over saving toward a first home. Details on the subscription limits and property price cap are still subject to a consultation. If you have an existing Lifetime ISA, no immediate changes apply.

Where Debitam Fits In Helping You To Navigate New HMRC ISA Tax Changes?

ISA changes are personal tax territory, but for many self-employed people and business owners, personal and business finances are closely linked. Getting your personal tax position right matters as much as getting your corporation tax return or Self Assessment filed correctly.

At Debitam, we work with sole traders, SME owners, and limited company directors who need clear answers without the jargon. If you're trying to figure out how the new ISA rules interact with your dividend strategy, Self Assessment obligations, or wider tax planning, our accountants can walk you through it accurately and without the guesswork.

No hidden fees. No vague advice. Just straightforward support from people who've dealt with HMRC before. Get in touch with Debitam today.

Note: This article is for informational purposes only and does not constitute financial or tax advice. ISA rules and tax rates are subject to change. Always consult a qualified adviser for guidance tailored to your personal circumstances.