Isa savers under 65 have ‘last chance’ in the new 2026-27 tax year

Many Isa savers will have a “last chance” as the new tax year gets underway to stash their full £20,000 allowance in cash.

The new tax year, starting from April 6, gives Isa savers the opportunity to put up to £20,000 away under the annual allowance for adults.

From April 6 2027, however, changes will mean that, while the total annual Isa allowance will still be £20,000, adults aged under 65 will only be able to put away up to £12,000 in a cash Isa, with the remaining £8,000 allowance potentially going into stocks and shares.

Savers aged 65 and over will retain the annual £20,000 subscription limit for a cash Isa.

Catherine Wray, head of saving at Leeds Building Society, said: “This will be the last year that tax-free limit on cash Isas will remain at £20,000 for all.

“Next April it reduces to £12,000 unless you are over 65, in which case there is no change.

“The aim is to encourage people to invest by providing a higher tax-free wrapper on other Isas such as stocks and shares, but cash saving remains very important.”

She added: “Cash Isa savings remain indispensable; they help achieve savings goals, give people stability and financial resilience to allow them to consider investing at the right time for them.

“In an uncertain world, the security provided by savings gives psychological safety for consumers, as a third of consumers are put off investing by global instability.

“In fact, 49% of people we surveyed said they are drawn to cash savings for their accessibility, 46% for the predictable returns and 45% for their simplicity, which in turn help to reduce financial stress.

“The start of the tax year is a good time to revisit your financial goals and ensure your plans still align with them.

“Think about your personal savings allowance, check how much you can save or invest tax‑efficiently, and make sure you’re using the options available to you.”

Michelle Holgate, director, wealth manager at RBC Brewin Dolphin, said the 40% reduction in the annual cash Isa limit for under-65s in 2027 “represents a potentially momentous shift in the UK savings and investment landscape, yet our recent survey shows that 50% of savers are not aware of this change”.

She added: “We know different people have varying levels of risk appetite, and investing in the stock market comes with the possibility of losses as well as gains.

“Understanding one’s emotional and financial ability to withstand these fluctuations is key to selecting the right approach.”

Isas allow people to ringfence their savings and investments from tax.

Another way that savers receive tax breaks on their pots is through the personal savings allowance (PSA), and the new tax year marks a decade since its launch.

The allowance, which has remained static, enables people to earn interest on savings without paying tax on it. Basic rate taxpayers can earn up to £1,000 in interest per year, while higher rate taxpayers can earn up to £500 under the tax-free allowance.

According to Moneyfactscompare.co.uk, savers now receiving interest from a top one-year bond a year ago that paid 4.58% on a £20,000 deposit would have earned £916, breaching the £500 PSA for higher-rate taxpayers, and just coming under the £1,000 PSA for basic-rate taxpayers.

Meanwhile, a £20,000 investment in the top one-year cash Isa that paid 4.45% would have earned £890 tax-free.

Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said PSA levels have “not moved along with the times”.

She said: “Cash Isas don’t tend to pay rates too dissimilar to non-Isas at this time of year, because of the big push to improve deals during Isa season.

“So really, someone who has or is about to move up an income tax band would be wise to use up their cash Isa allowance, or lose it.”

She added: “The past 10 years have shown consumers the importance of building a healthy nest egg to help brave economic storms, it helps with financial resilience and to mitigate the reliance on short-term debt.”

Alice Haine, a personal finance analyst at Bestinvest by Evelyn Partners, said that while the PSA “was adequate when interest rates were at record lows, high interest rates in recent years, combined with frozen income tax thresholds, mean more people are finding themselves liable for tax on savings interest as salaries rise and individuals move into higher tax brackets.”

She added: “Effectively for every £100 in interest earned above the PSA on a standard savings account, a basic rate taxpayer keeps just £80…

“Ultimately, no one should be paying tax on their savings interest if they have an unused Isa allowance available.”

Ms Haine also said that “there can be a case for holding too much cash,” adding: “While a cash Isa can work well for short-term needs or those needing access to their money in the next five years, a stocks and shares Isa may be a better solution for long-term savers seeking returns that outpace inflation.

“A minimum five-year time horizon is recommended for investors considering a stocks and shares Isa, important when you consider that financial markets, especially equities, can be volatile over short-term time periods but have historically delivered much higher real returns – that is, returns that beat the effect of inflation – than cash over the long term.

“While, for the risk-averse, cash savings may feel safer and be easily accessible, they might limit the potential for wealth to grow in real terms.”

The value of investments can go down as well as up and investors may get back less than they paid in.

Derence Lee, chief finance officer at Shepherds Friendly, said stocks and shares Isas “could be better suited to those looking to grow their investments over the medium to long term, offering access to a wide range of funds to suit different goals, risk appetites and budgets”.