When it comes to looking after your finances, good, proactive planning is often key to success, not least because thinking ahead can help you plan for new legislative changes and tax rules.
The big rule change to understand today relates to how much you’ll be able to save in a Cash ISA from April 2027.
At the moment, savers and investors alike have an annual Individual Savings Account (ISA) allowance of £20,000. This can be split between Cash ISAs and Stocks and Shares ISAs to suit you.
From April 2027, the ISA allowance will change for under-65s
In the new tax year – which starts on 6 April 2027 – if you’re below age 65, you’ll only be able to pay £12,000 into a Cash ISA.
If this applies to you, you could use your full £20,000 allowance by saving £12,000 in a Cash ISA and investing the remaining £8,000 in a Stocks and Shares ISA.
Of course, you could choose an alternative combination. But however you choose to spread your savings, you must:
- Not pay more than £12,000 into a Cash ISA
- Ensure that the total amount you pay into your ISAs doesn’t exceed the £20,000 total ISA allowance.
If you’re over 65, should you wish, you can continue to save the full £20,000 into a Cash ISA each year.
It’s worth remembering that no matter what type of ISA wrapper you use, interest and gains will primarily remain tax-free, however…
Any cash holdings you have in non-Cash ISAs may be subject to 22% tax
Because some Stocks and Shares ISAs can include a cash holding, any interest earned on cash held in a non-Cash ISA may be subject tax at 22%.
The rule is designed to avoid a potential loophole. Where it applies, ISA managers will pay the charge directly to HMRC.
Although there’s no additional administrative burden for you to worry about, it’s worth checking whether your Stocks and Shares ISA has a cash element that may be affected.
If in doubt, please get in touch. We’ll help you understand where and how your money is invested, and explore potential opportunities to make the most of the tax-efficient options available.
Cash and investing both play an important role in your financial plan
Cash savings can provide a crucial financial cushion in the event of an emergency.
Ideally, your emergency fund should have enough money to cover three to six months of normal spending. Depending on your circumstances, you may wish to hold more.
This way, should you face an unexpected bill, your long-term financial plan should be protected from any short-term shocks life may bring.
As well as your emergency fund, saving cash for an upcoming holiday or other short-term goals may also be a sensible strategy.
However, when planning for long-term goals, investing your wealth could help protect your savings from the erosive effects of inflation.
Although past performance is not a guide to future performance and should not be relied upon, historically, investing in shares has delivered higher profits than saving in cash over long periods.
In fact, when Vanguard compared £10,000 in cash savings with £10,000 in global investments between 31 December 2004 and 31 December 2025, before and after inflation, the result was stark:
- The cash savings grew to about £15,600. But the effects of inflation reduced the real-terms spending power of the return to approximately £4,100.
- The cash invested in global shares grew to about £86,400. After inflation, it would be worth approximately £74,000.
Remember, the value of investments and any income from them can fall as well as rise, and you may not get back the original amount invested.
Get in touch
If you’d like to explore how you might save and invest for your future, or you’re concerned about how the upcoming ISA rule changes may affect your long-term financial plan, please get in touch.
Email contactme@kbafinancial.com or call us on 0161 260 2002.
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.
An ISA is a medium- to long-term investment, which aims to increase the value of the money you invest for growth or income or both. The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.
Past performance is not a guide to future performance and should not be relied upon.
HM Revenue and Customs’ practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Approved by The Openwork Partnership on 30/07/2026.