New ISA rules announced – what’s changing and why savers may need to act

Following the monumental changes introduced in Chancellor Rachel Reeves’ November 2025 Budget, the ISA landscape has been transformed for the 2026/27 tax year and a major new restriction now dictates exactly how savers must allocate their annual allowance.

From April 1 2027, savers will only be able to put £12,000 into a Cash ISA, and the rest of the £20,000 allowance can only be placed in a Stocks and Shares ISA.

The move is to encourage more people to invest in the stock market, which historically have provided better returns than bank interest rates.

Interestingly, the power of long-term investing means the number of ISA millionaires is on track to surpass the number of £1 million lottery jackpot winners, as stocks and shares ISAs continue to outperform traditional cash savings.

HMRC data obtained via Freedom of Information requests in early 2026 reveals there are now more than 5,000 ISA millionaires in the UK, with an additional 60,000 savers sitting on pots worth over £500,000. By utilising the full £20,000 allowance in equity-based ISAs, these investors are bypassing the 'tax trap' that currently catches 2.6 million savers who rely on standard interest-bearing accounts and are hit by frozen personal allowances.

What is an ISA?

ISAs (Individual Savings Accounts) allow savers to invest money without paying tax on interest made.

Each saver has an annual allowance and they can't invest more than that allowance in each tax year.

How much can you put in an ISA? Well, the annual allowance is currently £20,000 and this looks set to remain for the foreseeable.

Money can be split between a Cash ISA, a Stocks and Shares ISA, a Lifetime ISA and an Innovative Finance ISA. Only a maximum of £4,000 a year can be put into a Lifetime ISA.

There are also Junior ISAs for under 18s. They can only save up to £9,000 per tax year.

New ISA rules

ISA allowance frozen - and split: For the 2027/28 tax year, the overall ISA allowance remains frozen at £20,000, but a strict new cash cap has been introduced.

Savers can now only put a maximum of £12,000 into a Cash ISA each year and any remaining allowance (up to £8,000) must be placed into a Stocks and Shares ISA.

This move is designed to encourage long-term investment and stock market investment, which typically sees higher returns than bank rates.

The £20,000 annual allowance has been frozen since 2017, which is a blow for savers when inflation has surged over the last 24 months.

For those with a large amount of money to save, they may well end up paying more tax on interest earnt in savings accounts outside of ISAs, because interest rates are so high.

An estimated 2.6 million people are now expected to pay tax on their savings interest in the 2025/26 tax year due to frozen personal allowances and higher interest rates, according to HMRC figures obtained by AJ Bell via a Freedom of Information Act request.

The Under-65s 'Cash Squeeze': There is a the generational split in how you can save. The £12,000 Cash ISA limit only applies to those under the age of 65.

Chancellor Rachel Reeves' strategy is clear: to move the UK from a nation of savers to a nation of investors. But investing in the stock market is usually considered a long-game, so those over 65 can still invest their full amount into cash if they wish.

However, for those nearing retirement who prefer the safety of cash, this creates a significant planning hurdle. If you haven't yet maxed out your current £20,000 cash allowance for the 2025/26 year, you have until midnight on April 5 2026 before limits reset.

Age limit increasing: The minimum age to open an adult Cash ISA remains at 18 years old, after the limit was raised from 16 in April 2024. For those under 18, the Junior ISA (JISA) remains the primary tax-free gateway, with an annual limit of £9,000.

How many ISAs can I have?

You can now have multiple ISAs. Savers can pay into multiple ISAs of the same type with different providers within a single tax year.

This flexibility, active since April 2024, allows you to mix and match providers to find the best rates or features.

Savers could previously only have one type of each ISA throughout the tax year. That meant if you found a better deal, you would have to move all your money to that same provider.

Some banks reduce your interest reward if you take out money before the term is over, meaning you could be trapped with a lower rate. But savers can pay into the same type of ISA with different providers if they still have allowance left.

Partial transfers between providers: In addition to being able to have ISAs with different providers, savers can also now perform partial transfers of funds between providers at any time, regardless of when the money was paid in, giving you total control over your tax-free pot.

Until rules changed in April 2024, if you moved money to a new provider, you had to move the entire amount you invested during the current tax year, or nothing at all.

Fractional shares allowed: A Stocks and Shares ISA allows savers to invest in the stock market without having to pay tax on any earnings.

Currently savers have to hold whole shares, but when a high-value share costs hundreds of pounds, this can block savers from investing in these shares and therefore companies.

New rules will allow savers to hold a fraction of a share in their ISA, opening up more investment options to savers.

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