The UK Treasury has announced significant regulatory updates for Individual Savings Accounts (ISAs) intended to shift investor behavior away from cash deposits and toward equities. These measures include new “anti-circumvention” rules and a structural overhaul of products designed for first-time homebuyers.
Starting in April 2027, the annual limit for cash ISAs will be reduced from £20,000 to £12,000. To prevent investors from using the more generous £20,000 stocks and shares ISA allowance to hold idle cash, the government is imposing a 22% tax on interest income earned from cash held within those accounts. Money market funds will remain exempt from this levy, provided they do not constitute the entirety of the portfolio.
Simultaneously, the Treasury has launched a consultation to replace the current Lifetime ISA (LISA) with a dedicated First Time Buyer ISA. The proposed product would be restricted exclusively to property purchases, removing the retirement savings component of the existing LISA. Under the new model, the government bonus would be granted at the time of purchase rather than as an upfront deposit, aiming to eliminate the contentious 25% early withdrawal penalty.
Financial experts have expressed mixed reactions. While simplification of the housing-focused product is generally welcomed, analysts from firms like Quilter and AJ Bell have warned that the changes—particularly the new tax on cash within stocks and shares ISAs—could introduce unnecessary complexity for savers at a time when the government is aiming to encourage broader participation in equity markets.