Major changes are on the horizon for ISAs and other savings accounts. Starting in April 2027, the rules surrounding ISAs will become more intricate. A reduction in the cash ISA limit is set to take effect for younger savers, while a new fee on cash within stocks and shares ISAs will be implemented.
Moreover, the tax rate on savings interest outside of ISAs will see an increase. By April 2028, a First Time Buyer ISA will be introduced to replace the Lifetime ISA. The annual cash ISA limit will be decreased from £20,000 to £12,000 for individuals under 65 starting in April 2027.
Despite this change, the overall ISA limit will remain at £20,000, allowing savers to allocate funds between different types of ISAs. The adjustment aims to promote investment among younger individuals. Over-65s will still have the option to save up to £20,000 in a cash ISA each tax year.
To prevent circumvention of the new cash ISA limit regulations, a 22% levy on interest earned from cash held in stocks and shares ISAs will be imposed. Restrictions will also be placed on the portion of non-cash ISA portfolios invested in Money Market Funds to deter certain fund transfers.
The introduction of the First Time Buyer ISA in April 2028 will offer a bonus for first-time home purchases, similar to the Lifetime ISA setup. While the specifics of the bonus are yet to be disclosed, it is expected to provide a financial boost for homebuyers.
Unlike the Lifetime ISA, the First Time Buyer ISA will exclusively cater to homebuying purposes and will not serve as a retirement savings vehicle. The property value limit for the First Time Buyer ISA remains undisclosed.
Outside of ISAs, interest earned on savings is subject to taxation once a certain threshold is exceeded. Basic-rate taxpayers can earn up to £1,000 in savings interest tax-free annually, with a 20% tax on amounts above that. The tax rate is set to increase to 22% from April 2027.
Higher-rate and additional rate taxpayers face steeper tax rates on savings interest, with the percentages set to rise accordingly. The adjustments aim to streamline ISA regulations and encourage responsible saving and investment practices.