ISA Changes Coming in 2027: Why This Year and Next Are Key for Savers
By calculatemysalary.co.uk Editorial Team
The ISA cash limit drops to £12,000 for under-65s from April 2027, and savings tax rates rise from April 2026. Here is why the next two tax years matter for ISA planning.
The Autumn Budget 2025 announced that the ISA cash limit will be reduced from £20,000 to £12,000 for savers aged under 65 from April 2027. Combined with higher savings and dividend tax rates arriving in April 2026, the next two tax years are an important window for ISA planning.
What Is Changing?
ISA allowance — now vs future
| Tax Year | Total ISA Allowance | Cash ISA Limit (under 65) | Cash ISA Limit (65+) |
|---|---|---|---|
| 2025/26 (current) | £20,000 | £20,000 | £20,000 |
| 2026/27 | £20,000 | £20,000 | £20,000 |
| 2027/28 onwards | £20,000 | £12,000 | £20,000 |
The total ISA allowance stays at £20,000, but from April 2027, under-65s will only be able to put £12,000 of that into cash ISAs. The remaining £8,000 can still be used in Stocks & Shares ISAs, Innovative Finance ISAs, or Lifetime ISAs.
For savers aged 65 and over, the full £20,000 cash ISA limit is retained.
Savings tax rates rising from April 2026
From 6 April 2026, tax on savings interest outside an ISA rises by two percentage points:
| Band | Current | From April 2026 |
|---|---|---|
| Basic rate | 20% | 22% |
| Higher rate | 40% | 42% |
| Additional rate | 45% | 47% |
The Personal Savings Allowance remains unchanged — £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers — but any interest above that is now taxed at a higher rate.
Why This Matters — and Why Now
You've got a shrinking window. From April 2027, the cash ISA limit drops from £20,000 to £12,000 for under-65s. That's the last chance you get to stash a full £20,000 in cash ISAs. After that? Gone.
Savings tax is about to bite harder. From April 2027, tax on savings interest jumps by 2 percentage points. So if you're a higher-rate taxpayer with £50,000 earning 5%, you get £2,500 in annual interest. Your allowance? £500. That leaves £2,000 taxed at 42% — that's £840 out of your interest gone. Inside an ISA? Keep every penny.
Dividends too. If you hold dividend-paying shares or funds outside an ISA, you're about to pay more tax on the income. ISA protection suddenly looks very smart.
Practical Steps
If you are a cash saver
- Use the full £20,000 cash ISA allowance in 2025/26 and 2026/27 while you can.
- Transfer existing non-ISA savings into a cash ISA to shelter future interest from the higher tax rates.
- Compare ISA rates — competition between providers typically intensifies around the end of the tax year.
If you invest
- Consider a Stocks & Shares ISA for any of the £20,000 allowance you do not need in cash. From April 2027, the Stocks & Shares ISA effectively gains more of your allowance as the cash limit shrinks.
- Dividend-paying investments benefit particularly from ISA protection, given the new 10.75% / 35.75% dividend tax rates.
- Bed-and-ISA: If you hold investments in a general investment account, consider selling and rebuying them within an ISA wrapper to shelter future gains and income.
If you are over 65
- The cash ISA limit remains at £20,000 for you, so the April 2027 change does not apply. However, the higher savings tax rates from April 2026 still make ISAs worthwhile.
Lifetime ISA Reminder
The Lifetime ISA (LISA) allows contributions of up to £4,000 per year (counting towards your overall £20,000 ISA allowance) with a 25% government bonus. You must be aged 18–39 to open one, and withdrawals are only penalty-free for a first home purchase or after age 60.
If you are saving for a first home and are under 40, the LISA bonus is one of the most efficient savings tools available.
How This Fits with Other Budget Changes
The ISA changes sit alongside:
- Frozen income tax thresholds pushing more people into higher tax bands.
- Higher dividend and savings tax rates making tax-free wrappers more valuable.
- The salary sacrifice pension cap from 2029, which may push some savers towards ISAs as an alternative tax-efficient vehicle.
Together, these changes mean the gap between tax-sheltered and unsheltered savings is widening. Making full use of ISAs and pensions has rarely been more important.
Model Your Savings
Use our UK salary calculator to understand your take-home pay and work out how much you can afford to put into ISAs each month. Even small regular contributions add up over time inside a tax-free wrapper.
The Bottom Line
Honestly? Most people won't notice the £12,000 cap because they don't fill a £20,000 ISA anyway. But if you're building up a cash emergency fund or you're one of the disciplined savers who maxes out your allowance, these next two years are your last shot at £20,000 in cash. Once April 2027 hits, that door closes. Add in higher savings tax and it becomes clear: this is the moment to act.