HMRC will bring in new cash ISA rules after limit slashed to £12,000 | Personal Finance | Finance
Fresh regulations will be brought in to prevent savers from attempting to circumvent the new reduced threshold for cash ISAs, HM Revenue and Customs (HMRC) has confirmed. Official guidance released on the department’s website stated that measures will be implemented “to avoid circumvention of the lower limit for cash ISAs”.
The regulations will encompass levies on interest earned from cash deposits held within stocks and shares ISAs, alongside assessments to establish whether funds are being stored in “cash-like” products. At present, savers can deposit up to £20,000 each year into cash ISAs, stocks and shares ISAs, or a combination of both.
However, the Government revealed in the Budget that from April 2027, the yearly adult cash ISA threshold will be cut dramatically to £12,000. Only those aged over 65 will maintain the complete £20,000 annual cash ISA allowance.
The yearly total contribution ceiling for adult ISAs will stay at £20,000, potentially prompting some savers who hit the £12,000 cash ISA threshold to invest additional funds in stocks and shares. The guidance confirmed that measures to prevent circumvention of the reduced cash threshold will encompass prohibiting transfers from stocks and shares and Innovative Finance ISAs to cash ISAs.
Assessments will also be conducted “to determine whether an investment is eligible to be held in a stocks and shares ISA or is ‘cash-like’.” Levies may also be imposed on any interest earned from cash deposits held within a stocks and shares or Innovative Finance ISA.
The regulations will affect investors below 65 years of age, according to HMRC. The industry will be consulted regarding the draft legislation, which will be implemented through modifications to the ISA regulations and presented to Parliament well in advance of April 2027, the guidance confirmed.
The Budget also disclosed that a consultation will be published in early 2026 concerning the rollout of a “new, simpler” ISA product designed to assist first-time buyers in purchasing a property. When launched, this new offering will replace the Lifetime ISA.
Lifetime ISAs have faced criticism due to withdrawal penalties that can consume some of the funds savers have deposited if they attempt to withdraw money for purposes other than their first property purchase or retirement. The HMRC guidance indicated that the new product will offer greater flexibility for savers.
It said: “The Government will consult on introducing a new, first-time buyer only product that will provide the bonus when a person uses it to buy a house, removing the need for a withdrawal charge and giving savers flexibility in case their circumstances change.”
‘Unanswered questions’
Earlier this week, Jason Hollands, managing director of online investment platform Bestinvest by Evelyn Partners, expressed concerns that there were “unanswered questions” regarding how the reduced cash ISA limit would operate in practice.
He highlighted that under existing flexible arrangements, it remains possible to transfer a stocks and shares ISA into a cash ISA and vice versa. Mr Hollands had previously said that another matter to contemplate was whether cash savers with more than £12,000 to shelter might open a stocks and shares ISA with the surplus and leave their funds sitting in cash.
Speaking on Friday, following the HMRC guidance, Mr Hollands said: “While it is no surprise they are going to take action – as we predicted this – levying a charge on cash held within stocks and shares ISAs is yet another stealth tax that will impact genuine investors who sometimes decide to park money in cash for a period of time awaiting investment, or because they are nervous about the market environment.”
He said the assessments to establish whether qualifying investments are cash-like “will throw doubt about access to money market funds within stocks and shares ISAs and could even bring short-dated bonds into question”.
Mr Hollands also expressed worries that while “we will have to wait for more details” regarding how precisely the regulations would operate, if charges ended up being imposed on stocks and shares ISA managers, based on their total client cash balances, this “would clearly require them to pass on this cost as an account fee”.
