TL;DR
- For the 2026/27 tax year, nothing changes. You’ve still got a £20,000 allowance to split however you like.
- From April 2027, under-65s can only put £12,000 of that into a Cash ISA. The rest has to go into investments if you want to use the full £20,000.
- Also from April 2027, cash left sitting uninvested in a Stocks and Shares ISA gets hit with a 22% charge on the interest it earns.
- The Lifetime ISA is being replaced by a new First-Time Buyer ISA in April 2028. If you’re eligible now, it’s still worth considering.
There’s lots changing for ISAs in the next couple of years and it’s getting a little confusing, so let’s break it down.
For the 2026/27 tax year, nothing is changing. Your allowance is still £20,000, you can split that however you like across a Cash ISA, Stocks and Shares ISA, Lifetime ISA, or Innovative Finance ISA.
From April 2027, the new changes come in.
The Cash ISA cap is being cut
From April 2027, the overall £20,000 annual ISA allowance stays the same, but for people under 65, the cash allowance will be capped at £12,000.
That means if you’re under 65 and you want to use your full £20,000 ISA allowance, at least £8,000 of it will need to go into a Stocks and Shares ISA, Innovative Finance ISA (we’ll call them Investment ISAs), or Lifetime ISA. You can’t just park the whole lot in cash and call it done.
People aged 65 and over will still be able to hold up to £20,000 in a Cash ISA if they prefer.
Any existing Cash ISA balances that have built up before that date are not affected – so anything you’ve already saved is fine.
The government’s logic here is to nudge people towards investing rather than just saving in cash.
Sitting on cash inside your Stocks and Shares ISA? There’s a new tax charge coming
This one can be a little confusing – but essentially from April 2027, a flat rate 22% charge will apply on the interest on cash held in Investment ISAs. This is when you have an Investment ISA, but you leave money (intentionally or unintentionally) sitting in the cash portion – waiting to invest or just not getting round to it. You’ll be taxed on the interest that cash earns from April 2027.
The 22% charge will apply universally, regardless of age or income tax bracket. It’s not a huge amount for most people, but it’s a clear signal from the government: invest your ISA money, don’t just leave it sitting there.
If you have a Stocks and Shares ISA with uninvested cash, make a plan for it before April 2027.
The Lifetime ISA is being replaced, but not yet
If you have a Lifetime ISA, or you’ve been thinking about opening one, here’s what you need to know.
The Lifetime ISA is set to be replaced by a new First-Time Buyer ISA in April 2028. The government launched its consultation on this in June 2026, and the key reason for the change is that the LISA, as it currently stands, hasn’t been working well for a lot of people.
The biggest problem is the withdrawal penalty. If you save into a Lifetime ISA and then decide not to buy a home with it – maybe because life changed, or the property fell through, or the £450,000 price cap excluded where you actually wanted to live – you face a 25% withdrawal penalty. That charge applies to the entire balance, contributions and government bonus alike.
So you could save £4,000 in year one, receive the £1,000 bonus, and your pot is £5,000. If you withdraw it without buying a home, HMRC takes 25% of the lot — you receive £3,750. You’ve lost £250 of your own money.
What the new First-Time Buyer ISA will look like:
The consultation proposes a home-buying account available to first-time buyers aged 18 and over, with no upper age limit.
The government bonus will be paid as a lump sum when you go to buy your first home, so the idea is there wouldn’t be a withdrawal penalty.
The details around the bonus rate, annual subscription limit, and property price cap haven’t been confirmed yet and will be announced in the future.
Should you open a Lifetime ISA now?
If you’re eligible (aged 18-39), opening one now before the replacement launches is still worth considering. Existing LISA holders can continue to contribute to their accounts, even after the new product launches. You’d continue to get the monthly bonus compounding until the new product arrives.
What do you need to think about?
This tax year, you’ve a full £20,000 ISA allowance for 2026/27, with no restrictions on cash ISAs.
From April 2027: know that your Cash ISA limit will be £12,000, but Stocks and Shares ISA limit remains at £20,000. Also, if you have a Stocks and Shares ISA with cash sitting in it uninvested, make a plan to actually invest it before the 22% charge on the interest kicks in.
If you’re saving for your first home: Keep an eye on the First-Time Buyer ISA consultation. The replacement isn’t launching until April 2028, and if you’re eligible for a LISA now, it might still be worth opening one.
Please note: this article is for information purposes only and does not constitute financial advice. Tax rules can change, and the right ISA strategy will depend on your individual circumstances.