Rachel Reeves Cuts Cash ISA Limit to Boost Investing

Chancellor Rachel Reeves announced a major overhaul of the Individual Savings Account (ISA) system effective April 6, 2027. For savers under 65, the annual tax-free cash ISA allowance will drop from £20,000 to £12,000, though the total ISA allowance remains £20,000. The remaining £8,000 must be allocated to stocks and shares or innovative finance ISAs. Savers aged 65 and over will retain the full £20,000 cash limit.

To prevent savers from bypassing these limits, the government is introducing a 22% flat-rate tax on interest earned from uninvested cash held within non-cash ISAs. Additionally, the reforms prohibit under-65s from transferring funds from stocks and shares ISAs back into cash ISAs and restrict the use of money market funds to fill investment accounts. HM Treasury maintains these changes will make people better off by pushing them toward assets that historically outperform cash.

The policy has already triggered a significant market reaction. In April 2026, approximately £12 billion flowed into cash ISAs—one of the highest monthly totals on record—as savers rushed to utilize the higher allowance before the 2027 deadline. Industry reactions are mixed; while Nationwide Building Society and the Building Societies Association welcome the clarity and the push for an investment culture, others, including the Personal Investment Management and Financial Advice Association and Coventry Building Society, warn that the added complexity may deter investors and undermine the ISA brand.