Making full use of your tax allowances remains one of the simplest ways to protect your money from unnecessary tax.
The Individual Savings Account (ISA) is a good place to start. Like many tax allowances, it has been frozen for years: the overall ISA allowance stays at £20,000 for 2026/27. It remains one of the simplest ways to shelter savings and investments from tax on interest, dividends and capital gains.
But changes are coming for ISA savers.
What’s changing?
An estimated £426 billion to £450 billion sits in cash ISAs, almost a quarter of all cash savings.
However, if you’re under 65, this is the last tax year to use the full allowance for cash alone.
From 6 April 2027, the annual cash ISA allowance for people under 65 will fall to £12,000. The remaining £8,000 must go into a Stocks & Shares ISA to use the full allowance.
The lower limit will apply only to new contributions. Any money already held in a cash ISA will still be sheltered from tax.
Savers aged 65 and over are not affected. You can still put the full £20,000 into cash if you wish.
This points to a broader policy shift: encouraging savers towards investing.
How investment ISAs are changing
The Government is imposing a 22% charge on any interest paid on uninvested cash within a Stocks & Shares ISA. The government wants to prevent people using an investment ISA to store lots of cash and leaving it there for long periods earning tax-free interest.
Rules around money market funds are also shifting. Last year, the government warned that these funds may be too ‘cash like’ to live in investment ISAs. It has now confirmed that investors can hold money market funds in investment ISAs and enjoy tax-free returns.
However, money market funds cannot represent 100% of your portfolio. In this scenario, they will be classed as ‘non-qualifying investments’.
Is it time to consider investing instead?
Cash feels safe, but inflation erodes its value over time. Even with improved interest rates, cash often fails to keep pace with inflation.
Ask whether a cash-only approach still fits your long-term plans.
Stocks & Shares ISAs offer an alternative. Values can go down as well as up but investing gives access to growth that cash cannot match over the long term. Choosing investments that match your attitude to risk can help manage the short-term ups and downs.
If you don’t need access to your money for at least five years, these changes are a prompt to diversify. Using part of your ISA allowance for investment can strengthen your long-term financial position.
Please get in touch to book a free initial discussion with a qualified financial planner.
Please remember, this content is provided for information purposes only. Investment involves risk. Past performance is not a guarantee or indication of future results. Investment return and the principal value of an investment may go up or down and may result in the loss of the amount originally invested. All investors should seek professional advice prior to any investment decision, to determine the risks associated with the investment and its suitability.
