The ISA rules are changing. Here’s what you need to know

As you grow your wealth, you want to hold on to as many of your gains as possible – rather than handing them over to HMRC.

Whether your funds are held in a portfolio of investments, a savings account, or a combination of the two, your interest and investment returns may be subject to tax.

Individual Savings Accounts (ISAs) are a tax-efficient tool for growing your wealth, keeping funds up to a certain level out of HMRC’s reach.

But the rules for ISAs are set to change, potentially limiting the amount of wealth you can grow without facing a tax bill. By preparing for these changes today, you can plan to continue earning interest and investment returns tax-efficiently.

Read on to discover how the rules are changing, when new legislation is set to be introduced, and how you could help mitigate your tax bill.

The Cash ISA allowance will effectively reduce to £12,000 a year for under-65s from April 2027

In 2026, you can save or invest up to £20,000 a year tax-efficiently across all adult ISAs. This includes:

• Cash ISAs: Savings accounts used to accrue tax-free interest.
• Stocks and Shares ISAs: Investment accounts used to earn tax-free returns.
• Innovative Finance ISAs: Accounts used to tax-efficiently invest in peer-to-peer loans, crowdfunding, and other less liquid investments.
• Lifetime ISAs: Savings up to £4,000 a year can receive a 25% Government bonus, subject to strict criteria (more on these accounts below).

As it stands, you have one £20,000 allowance to use across all ISA types. Any interest or investment returns gained on funds up to this level are exempt from Income Tax, Dividend Tax, and Capital Gains Tax (CGT).

But in the 2025 Autumn Budget, the Chancellor announced these rules would change from 6^th April 2027. For under-65s, £8,000 of the £20,000 allowance will be allocated exclusively for investment via Stocks and Shares or Innovative Finance ISAs. The ISA allowance will remain unchanged for those aged 65 and over.

In effect, this will limit the amount you can tax-efficiently save into a Cash ISA to £12,000 a year.

Fortunately, there are a few ways you can continue to grow your wealth tax-efficiently from April 2027.

• Use your Personal Savings Allowance (PSA): Depending on your Income Tax bracket, you may be able to earn some tax-free interest on savings outside of your ISAs. As of 2025/26, basic-rate taxpayers typically pay no tax on interest up to £1,000 a year, whilst higher-rate taxpayers have a £500 allowance. There is no PSA for additional-rate taxpayers. Low earners may be eligible for a starting rate for savings of up to £5,000 a year.
• Use both partners’ ISA allowances: If you’re in a couple, and under age 65, both you and your partner each have your own ISA allowance, meaning together you could save up to £24,000 a year into your Cash ISAs tax-efficiently.
• Use an investment ISA to make the most of your allowance: From April 2027, you will still be able to use your full £20,000 allowance, provided you deposit at least £8,000 into either a Stocks and Shares ISA or an Innovative Finance ISA. Whilst there is an element of risk when investing, it also has the potential to accelerate your wealth’s growth. According to Unbiased, in the last 10 years, Stocks and Shares ISA returns have averaged 9.64% annually, compared with 1.21% for Cash ISAs.

Growing your wealth tax-efficiently can be complex, and there’s no one-size-fits-all solution. To help you make informed decisions that meet your personal needs and goals, it may be worth seeking support from a Financial Planner before putting any plans into action.

Find out more about our investment support and planning services.

HMRC plans to replace Lifetime ISAs with a new ISA for first-time buyers

As mentioned, LISAs offer a 25% Government bonus on savings up to £4,000 a year, effectively topping up your annual contributions to a maximum of £5,000.

You must be aged 18 to 39 to open a LISA, and you can keep paying in until age 50.

Under the current rules, you can generally only access funds held in a LISA either:

• To purchase your first home
• After age 60.

Whilst you can technically withdraw the funds at any time, failing to meet one of these criteria usually triggers a 25% charge, meaning you lose the Government bonus as well as a portion of your savings.

According to HMRC, 45% of LISA-holders opened their account to save for retirement or later life, whilst 46% are saving for their first home. 7% are using their LISA for both purposes, whilst 1% can’t remember why they opened the account.

However, Money Marketing reports that the Government plans to replace LISAs with a new ISA aimed solely at first-time buyers – meaning they may no longer be suitable for retirement saving.

The bonus will reportedly be paid upon purchase of a first home, rather than monthly. Whilst this may remove the need for a withdrawal charge, delaying the bonus could see savers lose out on growth since the extra funds won’t be invested in their account alongside their own savings.

The details of the new ISA, and when LISAs will become unavailable, remain uncertain. If, as reported, the new accounts will be unsuitable for retirement and long-term saving, you may wish to use alternative ISA options or a pension scheme to save for later life.

Indeed, pensions also offer a tax-efficient way to grow your wealth. Not only are returns on investments held within an ISA exempt from tax, but you can generally boost your pot with tax relief at your marginal rate.

Discover how we can support you with retirement planning.

Get in touch

If you’re concerned about the upcoming changes to the ISA allowance and LISAs, get in touch to discuss your options to continue saving, investing, and growing your wealth tax-efficiently.

Email us at enquiries@pen-life.co.uk or call 01904 661140.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.