The new ISA amending regulations redraw the boundary between tax-free cash saving and tax-free investment from 6 April 2027. HMRC’s July 2026 consultation described the package as a £12,000 annual cash ISA limit for savers below 65, reinforced by transfer controls, restrictions on cash-like holdings and a charge on interest earned on cash held inside non-cash ISAs. Budget 2025 had already set that direction by keeping the overall ISA allowance at £20,000 while cutting the cash element for under-65s from April 2027. (gov.uk)
On the face of the regulations, a saver who is 64 or under at the end of the tax year will face a £12,000 cap on aggregate subscriptions to cash ISAs. That sits alongside, rather than replacing, the overall £20,000 annual ISA subscription limit, so the balance can still be used in stocks and shares, innovative finance or Lifetime ISA products subject to the existing rules. (gov.uk) For savers aged 65 or over, HMRC said the annual cash ISA limit will remain £20,000. The age test therefore matters: entitlement turns on the investor’s age at the end of the tax year, not the date on which the account was opened or the date of an individual subscription. (gov.uk)
The transfer rules are being tightened to stop the new sub-limit being circumvented. HMRC’s consultation said transfers from stocks and shares ISAs or innovative finance ISAs into a cash ISA will be prohibited where the account holder is below 65, while transfers out of a cash ISA into a non-cash ISA remain possible. (gov.uk) The draft legislative text shows the carve-out for older savers. Current-year and earlier-year subscriptions in a stocks and shares ISA or innovative finance ISA may still be transferred into another stocks and shares ISA, an innovative finance ISA or a Lifetime ISA, and into a cash ISA only where the investor is 65 or over at the end of the year. (gov.uk)
Money market funds are also being brought more squarely into the ISA rulebook. The amendments define a money market fund by reference to the authorisation tests in the Money Market Funds Regulation, treat money market funds as qualifying investments for a cash ISA, and permit them in a stocks and shares ISA subject to a new condition. (gov.uk) That condition is narrow but important. A stocks and shares ISA cannot hold money market funds as all of its non-cash investments; HMRC said partial cash-like allocations will be permitted, but wholly cash-like portfolios will not qualify. In policy terms, the government is drawing a line between short-term liquidity management within an investment ISA and using a stocks and shares ISA as a substitute cash account. (gov.uk)
The most technical change sits in new regulation 22A. Where interest or an alternative finance return is paid on cash deposits held within a stocks and shares ISA or innovative finance ISA, the ordinary income tax exemption falls away; the account manager must instead pay HMRC a charge at the savings basic rate for the year, due within six months of year end, and the investor cannot reclaim that amount through the account. The regulations define alternative finance return by reference to Part 10A of ITA 2007, so non-interest returns already recognised in tax law are brought into the same rule. (gov.uk) On present law, that points to a 22% charge from 6 April 2027, because Budget 2025 raised the savings basic rate to 22% from that date and HMRC’s technical note said yearly interest withholding will move to the savings basic rate. HMRC’s June 2026 tax-free savings newsletter said the purpose is to discourage long-term cash holdings inside stocks and shares and innovative finance ISAs. (gov.uk)
For account managers, the package is more than a product rule change. Cash ISA applications will need a declaration that the investor has not subscribed, and will not subscribe, above the specific cash ISA limit for each year in which that declaration has effect. Flexible ISA rules are also being amended so replacement subscriptions cannot be used to breach the cash sub-limit, and existing repair provisions are updated to deal with breaches of either the overall ISA limit or the new cash limit. (gov.uk) Reporting obligations widen at the same time. Annual returns to HMRC will need to include sums caught by regulation 22A, the total amount due under that charge, and separate reporting of money market fund holdings, all within the existing year-end return machinery. HMRC’s June 2026 newsletter had already flagged separate reporting of money market fund values as part of the operational design. (gov.uk)
The government has been clear about the policy aim. Budget 2025 presented the change as part of a wider supporting savers package, and HMRC’s June 2026 newsletter said the rules are intended to encourage retail investment, reduce opportunities to circumvent the lower cash cap and keep operational disruption manageable for firms and customers. (gov.uk) For savers, the practical effect is a sharper product split from 6 April 2027. Under-65s who want to use the full £20,000 ISA allowance will usually need a mix of cash and non-cash ISA products, while providers must update disclosures, transfer processes and year-end reporting before the new tax year begins. (gov.uk)