ISA changes: how will your savings and investments be affected?

What ISA changes are coming?

The Government has announced that, from April 2027, a 22% charge will apply to interest earned on cash held within non-cash Individual Savings Accounts (ISAs), such as Stocks & Shares ISAs and Innovative Finance ISAs.

This change follows ongoing calls from ISA providers and investors for greater clarity on how cash held within these types of accounts would be treated for tax purposes.

Reduced cash ISA allowance

This also comes after last November’s Budget, which confirmed a reduction to £12,000 in the annual tax-free Cash ISA allowance for those under age 65 from next April.

The annual stocks and shares ISA allowance will remain at £20,000.

Why is the Government changing ISA rules?

As a nation, the UK population invests less than other developed countries, and our personal wealth is suffering as a result.

In the UK, only 23% of people have invested in the stock market. In the US, it’s almost two thirds.

The Government hopes these changes will encourage more people to invest rather than keep cash in savings.

While the value of investments can fall as well as rise, over the long term, investments have generally delivered stronger returns than cash, which can lose value over time due to inflation.

What can I do about this?

It’s completely understandable to feel unsure about investing, with many people viewing cash as a ‘safe’ option.

However, over time, the effects of inflation can reduce the spending power of money held in cash.

With so many investment options available, it’s easy to feel uncertain about where to start.

How can a financial adviser help?

This is where seeking professional advice can really help.

A financial adviser will take the time to understand your individual circumstances, as well as your financial and personal goals, and provide tailored recommendations to help you make the most of your money – for you and your family.

What is happening to the Lifetime ISA?

The Government has launched a consultation on a new ‘First Time Buyer ISA’. This is in response to the average age of first-time buyers rising, and the current Lifetime ISA product having an upper age limit of 40 for new savers.

The new ISA will still include a 25% government bonus, but this will now be paid when scontracts are exchanged on your first home, rather than added each year.

Importantly, the previous 25% withdrawal penalty will be removed, meaning you won’t lose part of your original savings if you need to take the money out for another reason.

Will the £450,000 property price cap change?

The new proposed product does appear to address some of the issues with its predecessor, but an important point of note is that the consultation has not yet addressed the £450,000 price cap.

This was originally set in 2017 when the Lifetime ISA was launched, with the Government stating that the limit ensures the support goes to those that need it most.

What happens next?

We will be watching the consultation closely for further developments.

If you have any questions on your savings and investments, please get in touch with one of our advisers.

Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. The value of investments can go down as well as up and you may not get back the full amount you invested. Past performance is also not a reliable indicator of future performance. Always seek professional advice before making financial decisions.