Tax & rules 22 July 2026 6 min read

Cash ISA reform 2027: the £12,000 cap and the anti-avoidance rules explained

We flagged the Cash ISA cap as "on the horizon" back in May. It's since been firmed up with a full set of anti-avoidance rules - a 22% charge, a transfer ban, and a restriction on money-market funds - designed to stop the cap being quietly worked around. Here's what's actually in the reform, and what it means for where you hold cash from April 2027.

The basic change: £12,000 into cash, the rest elsewhere

The total ISA annual allowance stays at £20,000. What changes, from 6 April 2027, is how much of that can sit in a Cash ISA:

• Under 65: Cash ISA contributions capped at £12,000/year. The remaining £8,000 of headroom must go into a Stocks & Shares ISA or Innovative Finance ISA.
• 65 and over: unaffected - the full £20,000 can still go into a Cash ISA.

The stated aim is to nudge long-term savers away from cash and into productively-invested assets, on the theory that too much UK household wealth sits earning below-inflation interest in Cash ISAs when it could be compounding in markets over a multi-decade horizon. Whether or not you agree with the policy logic, the mechanics are what matter for your plan - and those mechanics got a lot more detailed since the reform was first announced.

The part that's new: three anti-avoidance rules

A flat cap on its own is easy to route around - just hold "cash" inside a Stocks & Shares ISA wrapper instead, or transfer money in from a wrapper that isn't capped. HMRC's factsheet closes both routes with three specific measures:

1. A 22% charge on interest earned on cash held inside a Stocks & Shares or Innovative Finance ISA. If you keep an uninvested cash balance sitting in your S&S ISA - waiting to be invested, or just parked there - any interest it earns is taxed at 22%, rather than growing tax-free like the rest of the wrapper.
2. Stocks & Shares and Innovative Finance ISAs can no longer hold 100% money-market funds. A money-market fund is, functionally, cash with extra steps. Banning a pure money-market holding in a non-Cash ISA closes the obvious workaround to rule 1.
3. Transfers from a Stocks & Shares or Innovative Finance ISA into a Cash ISA are no longer permitted for under-65s. Previously you could move existing ISA money between wrapper types freely. That route into extra Cash ISA headroom is now closed for anyone under 65.

None of this affects money already sitting in a Cash ISA before 6 April 2027, and none of it touches the 65-and-over exemption. It's specifically aimed at closing gaps for people who might otherwise treat the £12,000 figure as a suggestion rather than a cap.

A separate, friendlier change already in effect

Not everything in this ISA reform push is a restriction. Since the Spring Statement 2026, savers can now open and contribute to multiple Cash ISAs with different providers in the same tax year, and partial transfers of current-year Cash ISA contributions are allowed - so moving savings to a better rate no longer means an all-or-nothing transfer. Useful to know, but unrelated to the 2027 cap itself.

Who this actually affects

If you're under 65 and typically hold less than £12,000/year in cash savings anyway, none of this changes your behaviour - you were never going to hit the old £20,000 cash limit. The people it bites are:

• Savers building a large cash buffer inside an ISA wrapper (a mortgage deposit, a business exit fund, a near-term house move) who were putting the full £20,000 into cash each year.
• Anyone who was planning to use a Stocks & Shares ISA as a de facto cash account - either directly, or via a money-market fund - to sidestep a lower cash allowance.
• Anyone under 65 who was relying on S&S-to-Cash-ISA transfers to top up cash holdings beyond new-contribution limits.

If you're 65 or over, or you're comfortable holding the £8,000 excess in a genuine Stocks & Shares ISA rather than as parked cash, this reform is largely a non-event for you.

What this means for your plan

1. Don't confuse "capped" with "lost." The £20,000 total allowance is unchanged - the £8,000 above the cash cap still shelters from tax, just in a different wrapper. It isn't a tax rise on savers who invest it; it's a restriction on how much can sit in cash specifically.
2. If your ISA strategy depends on holding a large cash buffer inside the wrapper, start thinking now about where the excess above £12,000/year will go from April 2027 - a genuine Stocks & Shares ISA, a taxable savings account, or simply less annual cash contribution.
3. Watch the consultation process. Some of the anti-avoidance detail (particularly the money-market fund restriction) was still being finalised as of mid-2026. The broad shape is settled; the fine print may move before April 2027.

How the Excelergy planner handles this

The planner already enforces the headline £12,000 cap automatically. If your Auto-cryst tax-free cash destination is set to Cash ISA and you're under 65 after 6 April 2027, the engine applies the cap and routes any overflow to the Current Account with a warning - see the 2026/27 rules round-up for how that surfaces in the ledger.

What it doesn't model, deliberately, is the 22% charge or the transfer restriction. The planner treats your Stocks ISA balance as a single growth-modelled figure - it doesn't track the underlying asset mix, so it has no concept of "uninvested cash sitting inside the S&S wrapper" to apply a charge to, and it doesn't model ISA-to-ISA transfers as an event type at all. In practice this means: if you genuinely keep your Stocks ISA fully invested (the planner's implicit assumption), none of this affects your results. If you were planning to use it as a cash-parking spot, the planner won't warn you - that's on you to account for manually until modelling asset composition within a wrapper is worth the added complexity.