The Chancellor has announced the cancellation of its planned ISA reforms from the previous Budget. These were aimed at encouraging people to invest more, but in reality they risked bringing complexity to a regime that is loved for its simplicity.
These reforms would have meant savers and investors had big decisions to make before the end of the tax year and we welcome the decision to reverse the implementation and give people reassurance on how best to build their wealth long-term.
This article is for information only and not personal financial advice. Investments can go up and down in value so you could get back less than you invest. If you’re not sure what’s right for you, a financial adviser can help.
What were the 2027 ISA reforms?
In a nutshell the ISA reforms were due to be implemented from 6 April 2027 and covered the following:
A Cash ISA allowance cut to just £12,000 for savers under the age of 65. Those wanting to make full use of their annual £20,000 ISA allowance were to either invest it all or subscribe up to £12,000 to a Cash ISA and open a Stocks and Shares ISA to invest the rest.
A ban on transfers from a Stocks and Shares ISA to a Cash ISA, for those under 65. Transfers the other way around were still allowed for all savers.
Major changes to the handling of cash in a Stocks and Shares ISA. Any interest earned on cash balances incurring a flat 22% charge. This is in line with the new savings income tax rate for basic rate taxpayers applicable next financial year. This rule change was introduced to deter investors from circumventing lower Cash ISA limits by holding cash in their Stocks and Shares ISA instead.
Cash-like investments, like money-market funds, were permitted, as long as they do not comprise 100% of the Stocks and Shares ISA portfolio. This added complexity, as investors would then need to ensure that part of their Stocks and Shares ISA is always invested in other qualifying assets, like shares.
Building confidence in long-term investing
Sweeping these planned reforms away is good news for planning. Encouraging people to invest has the potential to make massive improvements to the nation’s long term financial resilience and the best way to do this is through engagement not making changes to a system people understand.
It’s important that people have a stable environment in which to do this so they can plan with confidence without the potential to be tripped up by complexity.
The Chancellor did announce it would explore a new Starter ISA incentive aimed at encouraging investment. However, this is very much an idea in development with no detail announced. The important thing to remember is that in terms of your current ISA saving and investing options nothing has changed.
The Government’s decision to leave Cash ISAs as they are, is the right one. For many of our more than two million clients, a Cash ISA is an important first step towards investing. - Matt Benchener, HL CEO
First time buyers and LISA reform
There have been changes to the ISA regime though.
Government has announced it will introduce a new ISA for the first time buyers.
The product will replace the Lifetime ISA (LISA) for new savers and provide a 25% government bonus, paid on withdrawal, towards the purchase of a first home worth up to £450,000. The maximum value of this bonus will be capped at £20,000.
If you already hold a LISA, you can continue contributing to and using your account under the current rules. If the home you want to buy is worth more than the £450,000 property price cap then the withdrawal charge will be reduced to 20%. However, the charge for unauthorised withdrawals remains at 25% with these changes coming into effect from midnight 29 October 2026.