HM Revenue and Customs has set out new Lifetime ISA rules that from April 2027 will apply a 22% charge to interest earned on uninvested cash held in stocks and shares Isa accounts. The change reaches people who keep cash inside those accounts, not just those who buy investments, and it will sit alongside a tighter cash Isa limit for younger savers.
At present, each adult in the UK can put up to £20,000 into Isas each tax year. Starting in the 2027-28 tax year, everyone under 65 will be limited to saving £12,000 a year in a cash Isa, while people aged 65 and over can continue to put the full £20,000 into a cash Isa.
HMRC and the 2027 rule change
HMRC says the new rules are aimed at stopping people using a stocks and shares Isa to bypass the new limit on cash holdings. It has also said you cannot hold 100% of your stocks and shares Isa in money market funds, and you will not be allowed to use the basic-rate or higher-rate tax-free interest allowance to shield money from the 22% charge.
That leaves investors with a narrower route for keeping money in a tax-advantaged wrapper while still earning interest. Under the new regime, under-65s will not be allowed to transfer money from a stocks and shares Isa to a cash Isa, so the cash inside the investment wrapper is treated differently from cash in a cash Isa.
Under-65s and cash Isa limits
The £12,000 cap applies only to people under 65 starting in the 2027-28 tax year. Older savers can still put the full £20,000 into a cash Isa, which means the same annual allowance will no longer work the same way for every adult in the UK.
For readers with money sitting in a stocks and shares Isa, the practical point is simple: interest on uninvested cash will face the 22% charge from April 2027, and the usual tax-free interest allowance will not remove it. Savers who rely on cash balances inside an investment Isa will need to check whether they want that money held there at all, or moved into a cash Isa while they still can under the current rules.
Isas after April 2027
The core idea of Isas stays the same: they remain tax-efficient accounts that can hold cash or investments. What changes is how much cash under-65s can shelter and how the interest on cash held in a stocks and shares Isa will be treated from April 2027.
For someone leaving money idle inside a stocks and shares Isa, the new charge is the part that changes the calculation first. The unresolved practical issue is how much interest typical savers will lose once the 22% charge starts to bite on balances that used to sit untouched.
