Thinking ahead to ISA changes in the new tax year 2027/2028
01 August 2026With the summer heat now upon us, it might be difficult to think forward to the autumn and the next Budget. We will of course have a new Prime Minister by then, and perhaps a new Chancellor in place to announce the new regime’s policies.
Budget announcements are rarely without tax changes, and this may affect investment planning looking forward. Some changes to tax efficient ISA plans have already been announced (in autumn 2025) for the tax year 2027/2028 ahead and we reflect on these changes in this blog.
Under age 65 restrictions on future cash ISA investment
Although not guaranteed, stocks and shares investment in the longer term is likely to outperform deposit (cash) type investments. To encourage growth into the longer term, the government has introduced a range of changes, and some might argue restrictions, on how ISAs are invested and maintained from the new tax year 2027/2028. This is aimed at encouraging stocks and shares investment.
One restriction is the limit that an under 65-year-old can invest into a cash ISA allowance of £12,000 overall annually. You can still use the full allowance of £20,000, although the balance of £8,000 must be into a stocks and shares or other non-cash ISA. You can of course place £20,000 into a stocks and shares arrangement as long as the overall limit in a tax year is not exceeded.
Tax charge on uninvested cash in stocks & shares ISA
As you might expect, there are new rules which will minimise the opportunity for the lower cash ISA limit to be circumvented, while preserving the flexibility needed for legitimate investment activity within non-cash ISAs.
From 06 April 2027, interest earned on uninvested cash held within a non-cash ISA (e.g. a stocks & shares ISA) will be subject to a flat rate 22% tax charge.
This is to discourage the holding of cash within a stocks & shares ISA and is designed to encourage people to invest in stocks & shares.
If there is an element of cash, and if interest is received on this, there may be a tax charge and, if so, this is paid directly to HMRC by the ISA manager. It is not declared on a tax return.
More details on the changes can be found here:
There are other investment considerations to these ISA changes, such as the protection of your funds should a provider fail.
Financial Services Compensation Scheme (FSCS)
Most ISA providers are authorised by the Financial Conduct Authority (FCA), although always check first before investing.
For stocks and shares ISA arrangements, should a firm fail, the FSCS may be able to compensate for a valid claim of up to £85,000 per eligible person, per firm.
Looking at cash ISAs, for banks, building societies and credit unions, up to £120,000 per eligible person, per firm is covered.
Further details may be found here: https://www.fscs.org.uk/what-we-cover/
Chapters Financial is not responsible for the content of external websites.
Summary
Planning ahead is always worthwhile. For many, investing in an ISA each year is a habit which has allowed funds to accumulate in tax-efficient arrangements. This habit might be disrupted by these rule changes at the start of the next tax year and being ready and planning ahead is always worthwhile.
Please do speak to the team at Chapters Financial about your investment planning needs and objectives.
No individual advice is provided in the course of this blog.
Keith Churchouse FPFS
Director
CFP Chartered FCSI
Chartered Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.
