Key takeaways
- From 6 April 2027 the cash ISA subscription limit falls to £12,000 for savers aged 64 or under, while the overall ISA limit stays at £20,000.
- Somebody moving £20,000 a year into cash has £8,000 a year left outside the shelter. At an assumed 4% interest, a basic-rate payer owes nothing for three years.
- Over ten years that displaced money builds a £99,891 taxable pot, costing £2,402 in tax at basic rate, £6,330 at higher rate and £9,349 at additional rate.
- The April 2027 rise in savings tax rates to 22%, 42% and 47% accounts for only £218 to £398 of those ten-year totals. The lost shelter does the rest.
- HMRC's own figures put 78% of cash ISA subscribers aged under 65 below £12,000 in 2022 to 2023, so the new limit binds on the other 22%.
What the cash ISA limit cut to £12,000 costs at each tax band
You put £20,000 a year into cash, and you want to know what the cash ISA limit cut to £12,000 takes off you. Here's the number first, then the reasoning.
From 6 April 2027 only £12,000 of your £20,000 allowance can go into a cash ISA if you're 64 or under at the end of the tax year. The other £8,000 has to sit in a taxable savings account. Assume that account pays 4%, you add £8,000 at the start of every tax year, and you leave the interest to compound. This is what the tax comes to.
| Your position | Year 1 | Years 1 to 5 | Years 1 to 10 |
|---|---|---|---|
| Basic rate, £1,000 savings allowance, 22% | £0 | £240 | £2,402 |
| Higher rate, £500 savings allowance, 42% | £0 | £1,152 | £6,330 |
| Additional rate, no savings allowance, 47% | £150 | £2,380 | £9,349 |
| Aged 65 or over, any band | £0 | £0 | £0 |
Three things fall out of that table. A basic-rate saver pays nothing at all in the first year, and not much by year five. An additional-rate saver pays from day one, because they have no savings allowance to absorb it. And anybody aged 65 or over is untouched, because their cash ISA limit stays at £20,000. Which tax year that starts in depends on your date of birth, because the cash ISA over 65 limit applies from the start of the tax year in which you turn 65.
What is confirmed, and the date it starts
None of this is speculation. The Individual Savings Account (Amendment) (No. 2) Regulations 2026 were laid before Parliament on 14 September 2026 and, in the words of regulation 1, "come into force on 6th April 2027". Regulation 6 sets the figure: "In any year in which a qualifying individual is 64 or under at the end of that year, the subscription limit for the aggregate of the individual's subscriptions to cash accounts is £12,000."
HMRC's policy paper of 17 September 2026 describes the same measure as reducing "the cash ISA subscription limit to £12,000 for individuals aged under 65" while "retaining the overall ISA subscription limit of £20,000". For investors aged 65 or over, the annual cash ISA limit stays at £20,000. There is no separate cash limit today, which is why HMRC can describe the measure as a reduction and count under-65s who subscribed more than £12,000 to a cash ISA in 2022 to 2023.
The savings tax rates are a separate measure, set out in a policy paper published on 26 November 2025 and effective from April 2027: "The basic rate will rise from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47%". Both changes land in the same tax year, which is why the arithmetic below runs them together and then separates them.
Where the £8,000 goes, and what 4% of it earns
The 4% is an assumption, not a published rate, and it's the single number in this piece that isn't a statutory fact. It's anchored to the Bank of England's effective interest rates release for August 2026, which put the rate on new time deposits from households at 4.24%. The same release put outstanding sight deposits at 1.65%, so 4% is near the top of what cash pays rather than typical of it. If your money is in an easy-access account, scale every figure here down.
Here is how the taxable pot builds, and what the interest on it costs in each band.
| End of year | Taxable balance | Interest that year | Tax at 22% | Tax at 42% | Tax at 47% |
|---|---|---|---|---|---|
| 1 | £8,320 | £320 | £0 | £0 | £150 |
| 2 | £16,973 | £653 | £0 | £64 | £307 |
| 3 | £25,972 | £999 | £0 | £210 | £469 |
| 5 | £45,064 | £1,733 | £161 | £518 | £815 |
| 10 | £99,891 | £3,842 | £625 | £1,404 | £1,806 |
The pot grows faster than the tax does, because the personal savings allowance is a flat amount and the interest isn't. Ten years of £8,000 contributions plus compounding at 4% produces £19,891 of interest in total. A basic-rate payer keeps £17,489 of it.
Why a basic-rate saver pays nothing until year four
The personal savings allowance does the work. GOV.UK's guidance on the April 2027 changes states that "Basic Rate taxpayers can receive £1,000 of interest without paying tax, and Higher Rate taxpayers can receive £500 without paying tax". Additional-rate payers get £0.
At 4%, £1,000 of interest takes a balance of £25,000. That is the number to hold on to, because it locates you on the table without any modelling. A basic-rate payer with less than £25,000 of taxable savings pays no savings tax at all. For a higher-rate payer the break-even balance is £12,500. For an additional-rate payer it's zero, which is why the first row of the second table already shows £150 for them.
There's a second shelter underneath that one. If your income other than savings and dividends is below £17,570, the starting rate for savings applies: a 0% band on up to £5,000 of interest, reduced by £1 for every £1 of other income above the £12,570 personal allowance. Someone living mainly off savings can therefore hold a large taxable balance and still pay nothing. Which band you're in is set by the same thresholds as the rest of your income tax: £12,571 to £50,270 for basic rate, up to £125,140 for higher rate, above that for additional rate.
The savings rate rise is the smaller half of the bill
Two policies arrive together in April 2027, and it's worth knowing which one is doing the damage. The chart above runs the same ten years twice: once at today's savings rates of 20%, 40% and 45%, and once at the 22%, 42% and 47% rates that replace them.
At basic rate the ten-year bill goes from £2,184 to £2,402. At higher rate, £6,028 to £6,330. At additional rate, £8,951 to £9,349. So the rate rise adds £218, £302 and £398 respectively. Against ten-year totals of £2,402, £6,330 and £9,349, the two percentage points are worth less than a tenth of the bill in every band. The rest comes from the £8,000 a year that no longer has a shelter to sit in.
That matters for how you read the headlines. A saver who reads "savings tax is going up" and a saver who reads "the cash ISA limit is being cut" are reading about the same tax year, but the second one is the expensive sentence.
The strongest objection is that most cash ISA savers never reach £12,000
Here's the serious counter-case, and it comes from HMRC's own costing. In its policy paper the department reports that "In 2022 to 2023, 78% of cash ISA subscribers aged under 65 subscribed less than £12,000 to a cash ISA and 22% subscribed over £12,000." On that distribution, roughly four in five cash ISA savers under 65 would have been unaffected by the new limit.
The savings tax change is narrower still. The same guidance that sets out the new rates notes that "Over 90% of UK taxpayers do not pay savings tax". Between the personal savings allowance, the starting rate for savings and ISAs themselves, most people's interest never reaches a tax return.
The counter to the counter is that cash ISA use has been growing fast. HMRC's annual savings statistics for September 2026 report that "around £135.7 billion was subscribed to Adult ISAs in 2024 to 2025, an increase of £32.7 billion compared to 2023 to 2024", driven by cash ISA subscriptions that "grew by 37.5% (£26.1 billion)". Around 16.8 million adult ISA accounts were subscribed to in that year, up from 15 million, and 64% of them were cash. The 2022 to 2023 distribution is two tax years older than the behaviour it's being used to describe, and a £26.1 billion jump in cash subscriptions is not the shape of a population sitting comfortably below the cap.
The routes around the limit are already closed
The obvious response to a cash ISA limit of £12,000 is to hold cash somewhere else inside the wrapper. The anti-circumvention factsheet published on 23 June 2026 addresses exactly that. A flat-rate charge, set at the savings basic rate of 22%, applies "to any interest or alternative finance return paid on cash held within a non Cash ISA". Cash-like assets, including money market funds, stay "eligible for non Cash ISAs, provided that they are partial allocations and do not make up 100% of the investments". How much the stocks and shares ISA cash interest tax actually costs depends on the rate the platform pays on that cash. The same cash limit would reach a first home deposit too, because the Treasury proposes counting a cash version of the Lifetime ISA replacement against it.
Transfers are restricted in one direction only. "Transfers from non Cash ISAs into Cash ISAs will not be permitted. It will remain possible to transfer from a Cash ISA to a non Cash ISA." At 65 the restriction is disapplied. Shares, funds, investment trusts, exchange-traded funds, bonds and gilts are not treated as cash-like and remain permitted, so the ISA rules on flexibility and transfers still apply to everything that isn't cash. HMRC puts the cost of the IT changes needed to deliver all this at around £0.2 million.
Where £12,000 stops being the binding number
Three things move the figure. Age is the cleanest: at 65 the cash ISA limit returns to £20,000, so a saver who turns 65 during a tax year is back to the full allowance for that year. A couple both under 65 have two limits, which is £24,000 of cash ISA capacity between them against £40,000 of total ISA allowance. And the £8,000 in the worked example is specific to a £20,000 saver. Somebody paying £15,000 a year into cash displaces only £3,000, which at 4% takes far longer to breach a £1,000 allowance.
The other lever is where the taxable money goes rather than how much of it there is. The tax on interest is the reason asset location arithmetic treats interest-bearing holdings as the most expensive thing to keep outside a wrapper, and it's the same reason the question of where to keep an emergency fund changes when part of the cash has to be taxable. The cash ISA changes in 2027 don't alter that ranking. They shrink the space available at the top of it.
What this arithmetic cannot tell you
Start with the limitations of the interest rate. 4% is an assumption dated to August 2026, not a forecast, and the Bank of England's own August figures span 1.65% to 4.24% depending on the type of account. Halve the rate and the ten-year basic-rate bill falls from £2,402 to £415, because a flat £1,000 allowance absorbs proportionally more of a smaller interest stream. A basic-rate payer's break-even balance doubles to £50,000.
The second limit is the forward view. The £12,000 cash ISA limit and the 22%, 42% and 47% savings rates are legislated for 2027 to 2028. The personal savings allowance, the starting rate for savings and the income tax thresholds beyond that year are not, and a change to any of them moves these numbers more than the ISA limit does. This model also cannot tell you what a saver actually does. It assumes the displaced £8,000 goes into a taxable savings account at the same rate, compounding, with tax paid from elsewhere. Someone who instead spends it, or who moves it into a stocks and shares ISA, faces a completely different set of numbers and, in the second case, a completely different set of risks.
The 78% figure is a sample of one tax year, 2022 to 2023, and a distribution measured before the 37.5% jump in cash subscriptions. It's the best number HMRC has published on who the limit binds, and it's also three years stale.
What would change the conclusion
The single most sensitive input is the savings rate you actually earn, because it sets how quickly the taxable pot clears the personal savings allowance. At 4% a basic-rate payer crosses £1,000 of interest in year four. At 2% that moves out to year six, and the ten-year bill drops to £415. Nothing about the £12,000 limit changes; the cost of it simply follows the rate.
A rise in the personal savings allowance would do the same job from the other end. That allowance is what keeps the first three years of the basic-rate column at zero, and GOV.UK's guidance on the new rates states that "Over 90% of UK taxpayers do not pay savings tax". Nothing published alongside the 22%, 42% and 47% rates moves the £1,000 and £500 figures. If they were raised, the opening table's first row would stay at zero for longer.
The threshold worth watching in your own numbers isn't the £12,000. It's the balance sitting outside the wrapper: £25,000 at basic rate, £12,500 at higher rate. LedgerTouch tracks that balance and the interest it throws off; a savings statement and a calculator do the same job once a year. Either way, the figure that decides whether the cash ISA limit cut to £12,000 costs you anything is the one on the taxable side. The same taxable comparison is what the premium bonds prize rate has to be measured against, and on £10,000 the median win is 3.50% rather than the advertised 4.35%.