The government tightens up rules on changes to ISAs

The government published its latest ‘Tax-free savings newsletter‘ to cover November 2025 at the end of last week. It laid bare a few more details on the Cash ISA limit changes that were announced in last week’s Budget – and it makes for concerning reading.

Why?

Firstly, because it prompts more questions than it provides answers.

And secondly, because it appears the government are attempting to clamp down on some of the least risky ways to use Stocks and Shares ISAs. That’s a concern because from April 2027, those who would have previously wanted to use the total £20,000 of their annual ISA allowance to boost their cash savings, are now going to need to divert £8,000 of that into an investment ISA instead if they want to use their full allowance.

Here’s what we’d already discovered from the Budget:

• The annual subscription limit for a cash ISA will be set at £12,000 for investors under the age of 65
• For investors aged 65 and over the annual subscription limit for a cash ISA will remain at £20,000

And here’s what the government has now said – which shows they know which techniques people like us would be suggesting risk-averse investors might like to explore as a workaround:

• There can be no transfers from Stocks and Shares and Innovative Finance ISAs to Cash ISAs
• There will be tests to determine whether an investment is eligible to be held in a stocks and shares ISA or is ‘cash like’
• There will be a charge on any interest paid on cash held in a stocks and shares or Innovative Finance ISA

Our view

The government categorically states in Friday’s newsletter that these rules are being introduced, “to avoid circumvention of the lower limit for cash ISAs”.

The reason the Treasury is so keen to shut people out of cash and “cash-like investments”, is that it is very keen to nudge more people into buying shares – particularly of UK companies. More people investing means more money is being channelled into British companies, which in turn will give the economy a boost.

That’s not necessarily bad on an individual level for savers – there are many reasons why investing could actually be a better option for many people. Long-term, investments tend to produce far greater returns for people than interest on cash savings does. Which is why we are very supportive of better investment education so that fear is not the only reason people don’t experience greater wealth.

However, if the government presses ahead with shutting down “cash-like” investments, the message they are giving is that they only want people to invest in more risky investments. That’s not a good way to reassure people who are nervous about the markets to move their hard-earned money from cash to stocks and shares.

There are also questions around what will be classed as a “cash-like” investment. It’ll probably rule out Money Market Funds, which are a very popular and low-risk option, well-suited to nervous and first-time investors. And it might even rule out Bonds and Gilts which are also preferred by those who are aiming for slower but safer growth, and an important part of many people’s investment strategies, particularly as they get closer to retirement age.

We also have questions around how “a charge on any interest paid on cash held in a stocks and shares or Innovative Finance ISA” will work. What does that mean for those people who keep cash deriving from dividend income, or sales of an investment, sitting in their account, uninvested. If you’re waiting for a good opportunity to reinvest that cash, it now sounds like you’ll be penalised if your provider pays interest on that uninvested cash. Currently, there are some great offers on uninvested cash interest rates. Will this rule change put an end to these kinds of incentives?

There are lots of questions that remain unanswered – and April 2027 isn’t that far away. We’re calling on the government to look at this urgently. Whenever we know – you will also know. And we hope they consider the needs of all investors, especially those who are cautious and stepping into the markets for the first time.