The £12,000 Cash ISA Limit: What You Need to Know Before April 2027

If you're under 65 and like keeping your savings in cash ISAs, you've got until April 2027 to make the most of your current allowance. After that, there's a cap coming—and it's going to force millions of savers to make some big decisions about where to put their money.

The government announced in the Autumn 2025 Budget that from 6 April 2027, anyone under 65 will only be able to deposit £12,000 per year into cash ISAs. That's a £8,000 cut from the current £20,000 limit. The overall ISA allowance stays at £20,000, but if you want to use the full amount, you'll need to put at least £8,000 into stocks and shares, innovative finance ISAs, or a Lifetime ISA instead.

It's not quite as simple as it sounds, either. The government's already planning rules to stop people gaming the system—limits on transferring between ISA types, possible charges on cash held in investment accounts, and tests to determine whether an investment is "cash-like."

Let's break down what's actually happening, who it affects, and what you should be thinking about right now.

What's Actually Changing (and When)

Here's the timeline:

The overall £20,000 ISA allowance doesn't change. What changes is how much of it you can shelter in cash.

And here's the kicker: the government is also increasing the tax you pay on savings interest outside ISAs. From April 2027, the rates jump to:

Why Is This Happening?

The official line is that this is about encouraging investment. The government wants people putting more money into stocks and shares—boosting the UK economy, supporting British businesses, all that.

The less official line? It's a revenue raiser dressed up as an investment incentive.

Think about it. For years, interest rates were so low that most people's savings didn't generate enough interest to even hit their personal savings allowance. The personal savings allowance (PSA) is the amount of interest you can earn tax-free outside ISAs:

But interest rates have climbed. As of January 2026, some of the best cash ISAs are paying over 4.3%. Suddenly, if you've got £25,000 sitting in savings earning 4%, you're generating £1,000 in interest—right at your PSA limit if you're a basic-rate taxpayer.

More people are now paying tax on their savings interest than at any point since the PSA was introduced in 2016. The government knows this. By capping cash ISAs and simultaneously increasing savings tax rates, they're creating a double whammy that will pull millions more into the tax net.

Who Actually Gets Hit By This?

The obvious losers: Conservative savers under 65

If you're someone who prefers the safety and certainty of cash—maybe you're approaching retirement, saving for a house deposit, or just risk-averse by nature—you're being pushed toward investment products you might not want.

Say you've been maxing out your cash ISA each year at £20,000. From 2027, you'll face a choice:

None of these options are what you signed up for.

Emergency fund savers

Financial advisers typically recommend keeping 3-6 months of expenses in easily accessible cash. For many households, that's £15,000-£30,000. If you're building this fund inside a cash ISA, you'll hit the new limit before you've even got adequate emergency coverage.

People who've already built up large cash ISA balances

Here's something important: the £12,000 limit only applies to new contributions. Money you've already got in cash ISAs stays exactly where it is, continues earning tax-free interest, and doesn't count against the new limit.

So if you currently have £50,000 in cash ISAs from previous years, that's all protected. But you can only add £12,000 more per year going forward.

The winners: Over-65s and people already comfortable with investing

If you're 65 or over, none of this affects you. You keep the full £20,000 cash ISA allowance.

And if you're already happy putting money into stocks and shares ISAs anyway? This barely touches you. You were probably splitting your allowance already, so the forced allocation might not even change your behaviour.

The Loopholes They're Already Closing

When the cash ISA limit was first announced, financial advisers immediately spotted some potential workarounds:

The message is clear: if you want tax-free treatment under the new rules, they want you actually investing, not just finding creative ways to park cash with a different label on it.

What About the Current Tax Year? (2025-26 and 2026-27)

You've still got time. The £20,000 cash ISA limit remains in place for:

That's two full years where you can still shelter £20,000 in cash if you want to.

If you've got a substantial amount sitting in taxable savings accounts earning interest, now would be a sensible time to move it into cash ISAs while you still can. Once it's in there, it's protected forever—there's no retrospective clawback.

Those rates have been falling throughout 2025 as the Bank of England cut interest rates multiple times (from 4.75% to 3.75%). They'll probably continue drifting lower through 2026, but they're still significantly better than the sub-2% rates we saw for most of the 2010s.

If you can lock in a decent fixed rate now, you're protecting not just your principal but also a guaranteed return that beats the new higher tax rates coming in 2027.

What Should You Actually Do?

The answer depends entirely on your circumstances, but here are some scenarios:

The Bigger Picture: What This Says About UK Savings Policy

There's something quite revealing about these changes.

For decades, governments have encouraged people to save. ISAs were introduced specifically to make saving attractive. The personal savings allowance was brought in to ensure that people with modest savings wouldn't face tax bills.

But now, at a time when millions of Britons are finally able to earn decent interest on their savings after years of near-zero rates, the government is simultaneously:

The result? More people paying more tax on their savings.

Some will argue this is fair—that ISAs were meant to encourage investment, not just tax-free cash hoarding. And there's some logic to that. But timing matters. These changes are hitting just as savers are finally getting decent returns after 15+ years of rock-bottom interest rates. It feels punitive.

ISAs aren't a luxury. For many people, they're the only way to save without seeing a chunk of their returns disappear to tax. Cutting the allowance while simultaneously increasing savings tax rates is a one-two punch that will hurt careful savers far more than it'll encourage risk-taking investment.

The Lifetime ISA Question

One other thing worth mentioning: the government's also announced they'll be consulting on replacing the Lifetime ISA with a "simpler" product for first-time buyers.

Lifetime ISAs currently let you save up to £4,000 per year with a 25% government bonus, but you face harsh penalties if you withdraw for anything other than your first home or retirement after 60.

The replacement product is promised to have "more flexibility" and remove "the need for a withdrawal charge." Details are coming in early 2026.

This matters because the Lifetime ISA sits within your overall £20,000 ISA allowance. If you use £4,000 of your allowance on a Lifetime ISA, you've got £16,000 left for other ISA types. Under the new rules from 2027, that could mean:

The new first-time buyer product could change these calculations significantly. Worth watching.

What Happens If You Don't Do Anything?

Let's be clear: you're not required to use your full ISA allowance. Millions of people don't.

If you don't take action, here's what happens:

Your existing cash ISA balances remain protected. Money you've already saved in previous years stays right where it is, earning tax-free interest forever.

From April 2027, you can only add £12,000 per year to cash ISAs (if you're under 65). Any additional savings will either need to go into:

For most people, the path of least resistance will be option three: just accepting the tax bill. That's probably what the Treasury is banking on (literally).

If you've got £30,000 earning 4% in a regular savings account, that's £1,200 in interest. As a basic-rate taxpayer with a £1,000 personal savings allowance, you'd pay 22% tax on the remaining £200—a £44 tax bill.

Not life-changing, but multiply that across millions of savers, and you can see why the government's doing this.

Final Thoughts

The £12,000 cash ISA limit is one of those changes that sounds reasonable on paper—"we're just encouraging investment!"—but feels quite different when you're actually trying to manage your money safely.

Not everyone wants to be an investor. Some people are genuinely risk-averse. Others are saving for specific short-term goals where capital protection matters more than growth. And plenty of people are in their 50s or early 60s, where they've got enough to invest and need to keep substantial sums in accessible cash.

For all those people, these changes are a pain. You're being told to either accept more risk than you're comfortable with, or pay significantly more tax on your careful savings.

There are two years left before this kicks in. If you're affected, the best thing you can do is maximise your cash ISA contributions in 2025-26 and 2026-27. Get as much sheltered as possible while you still can. Once it's in there, it's protected for life.

After April 2027? Well, we'll all be working out how to make the new rules work for us. Some will genuinely move into investing. Others will pay the tax. And a few will find creative (legal) ways around the new limits that the Treasury hasn't thought of yet.

That's how these things always go.