Savers who try to get around new cash Isa rules will face charge

The government is planning new restrictions to stop savers from getting around the incoming cap on cash Isas announced by the Chancellor in the Autumn Budget.

From 2027, the annual cash Isa limit will be cut to £12,000 for savers under 65. You can still keep the full £20,000 allowance but only if £8,000 of it is held in an investment Isa. 

The government has now moved to close several loopholes that would allow savers to continue shielding cash from the taxman instead of buying riskier shares.

Here, Which? takes a closer look at what the latest Isa shake-up means for your nest egg.

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Clampdown on cash

Chancellor Rachel Reeves hopes the forthcoming cut to the annual cash Isa allowance will encourage more Isa holders to invest their hard-money instead. 

Now HMRC is tightening the rules further to prevent savvy savers from taking advantage of loopholes that would undermine the government's plans. These rules will apply to investors under the age of 65.

The government will consult on the draft legislation, which will amend the Isa regulations. The final rules will be confirmed well ahead of April 2027.

This is what we know so far:

Flexible Isa restrictions

Under the current system, you can transfer a stocks and shares Isa into a cash Isa, and vice versa. There would therefore be nothing to stop someone opening a £12,000 cash Isa and up to £8,000 in a stocks and shares product, only to transfer the latter back into a cash Isa shortly after.

To prevent that from happening, savers will no longer be able to transfer money from stocks and shares and innovative finance Isas to cash Isas.

Blocking cash-like investments

HMRC also wants to crack down on savers who open a stocks and shares Isa, only to park cash in investment schemes such as money market funds.

So from 2027, the tax office says it will introduce 'tests' to determine whether an investment is eligible to be held in a stocks and shares Isa or is ‘cash like’.

There will also be a new charge on any interest paid on cash held in a stocks and shares or innovative finance Isa (Ifisa).

• Find out more: what was in the Autumn Budget?

Will the new rules work?

Cash Isas remain hugely popular with savers. The latest Bank of England data shows savers ploughed £4.2bn into cash Isas in October 2025. That's the largest inflow since the end of the tax year in April and is likely down to many savers anticipating the cut to the allowance.

While it's too early to say whether the Chancellor's reforms will encourage more savers to ditch cash and invest instead, survey research suggests many people are still unsure about stocks and shares.

A survey conducted by investment firm AJ Bell earlier this year found just one in five cash Isa savers would react to a cut to the allowance by investing more in the UK stock market. 

While a separate poll by asset management firm Royal London showed 35% of cash Isa savers worry about losing money, and 12% are concerned about being unable to access funds quickly.

Jason Hollands, managing director of investment platform and stocks and shares Isa provider Bestinvest, is also sceptical about the impact of the Chancellor's plans.

'While it is no surprise they are going to take action, levying a charge on cash held within stocks & 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.'

What can cash Isa savers do now?

The most effective step is to use the full £20,000 allowance while it remains in place. You still have the current tax year (2025-26) and 2026-27 to benefit.

Cash Isa deals tend to become more competitive towards the end of the tax year, with many strong rates appearing between February and April.

But you don’t have to wait. The annual Isa allowance resets on 6 April, and using it early in the tax year can give your savings longer to earn interest.

Most people save gradually rather than in one lump sum, so starting early can make it easier to budget across the year and maximise your allowance.

This table shows the current top instant-access and fixed-rate cash Isas, ordered by term:

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• Find out more: best cash Isa rates 2025

Is investing worth the risk?

It’s true that investments rise and fall in value. Shares can be more volatile than lower-risk assets such as bonds. But investing is designed for the long term.

Five years is typically the minimum recommended timeframe, and the longer you invest, the greater your chances of capturing the market’s strongest periods of growth. 

Analysis from AJ Bell suggests that someone investing £1,000 a month in the IA Global sector between 1999 and the end of 2024 would have earned £49,211 more than the average cash Isa saver.

If you’re new to investing, think about how much risk you’re comfortable taking. Diversifying across countries and asset classes – funds, trusts, shares and bonds – can help manage risk. A mix of cash and investment Isas may suit those taking a more cautious approach. 

• Find out more: how to invest: a beginner's guide