Experts have said the new rules are more complicated than they first seem
New ISA rules are “a complete dog’s dinner”, experts have warned.
From April 2027, someone aged 65 or over will still be able to put up to £20,000 into cash ISAs and transfer money from a stocks and shares ISA into a cash ISA. Those under 65, however, will be restricted to £12,000 of new cash ISA subscriptions and will not enjoy the same flexibility to move money into cash ISAs.
This is despite 65 no longer being the State Pension age and the fact that many people of that age will still be working and waiting to receive their pension. The changes were announced by former Chancellor Rachel Reeves in the November 2025 Budget and she said the aim of reducing the limit from £20,000 was to encourage more people to invest their money in stocks and shares instead.
“Someone who has invested £1,000 a year in an average stocks and shares ISA every year since 1999 would be £50,000 better off today… than if they’d put the same money into a cash ISA,” Ms Reeves told the Commons at the time.
Even those aged 65 and over will face the new 22% tax charge on interest payable to HMRC earned from cash deposits held inside a stocks and shares ISA. The government says the charge is intended to prevent people from using investment ISAs primarily as cash savings accounts.
However, older savers will be able to transfer those assets into a cash ISA, while being penalised if they simply retain the cash within their existing stocks and shares ISA. The published guidance also appears to contain no obvious transitional provisions for investors who already hold fixed-term cash deposits within stocks and shares ISAs that do not mature until after April 6, 2027.
They may have entered into those arrangements entirely legitimately under the current rules, but could find themselves caught by a change they have little or no practical ability to avoid. Scott Gallacher, director of Leicester-based Rowley Turton, described it as “a complete dog’s dinner” that showed “a remarkable lack of joined-up thinking by the government”.
He said: “If the government had aligned the cut-off with State Pension age, it would at least have had some logic. Instead, it has chosen the outdated age of 65. The government is effectively saying you are too young to receive your State Pension, but old enough to receive preferential ISA treatment. If there is a clear policy rationale for selecting age 65 rather than State Pension age, the government has yet to explain it.”
Gallacher added: “You seriously have to question the ministers, special advisers and civil servants whose fingerprints are all over this policy. Rather than creating a coherent system that encourages sensible long-term saving, they have produced different allowances, transfer rights and tax treatment based on an arbitrary birthday. Savers should not need a flowchart and their birth certificate to understand what they can do with an ISA.”
Rob Mansfield, Independent Financial Advisor at Tonbridge-based Rootes Wealth Management, said ISAs were becoming unnecessarily complicated.
He added: “Given all the problems the country faces, is this really the best use of the government’s time? There’s the ominous promise of a list of cash-like investments that will incur these charges to follow. The whole beauty of the ISA was that it’s a simple concept. Tax free savings up to a limit.
“Government’s keep faffing around with it and are undermining saving. People tend to default to cash because they don’t know any different and investments seem scary. These attempts to cajole people into investments is never likely to work well.”
David Stirling, Independent Financial Adviser at Belfast-based Mint Wealth, said the new rules would cause “chaos”
He added: “The new ISA rules are a masterclass in government policy that sounds coherent in a press release and disintegrates on contact with reality. Under-65s get a £12,000 cash ISA allowance, over-65s get £20,000, and the cut-off is not the State Pension age of 67 but the apparently magic number of 65, selected for reasons the government has yet to share with anyone.
“You are simultaneously too young for your State Pension but old enough for preferential ISA treatment. Savers will need their birth certificate and a flowchart just to work out what they are allowed to do. The 22% charge on cash interest inside stocks and shares ISAs completes the chaos.
“Older savers can sidestep it by transferring into a cash ISA. Younger ones cannot. Anyone locked into a fixed-term deposit inside an investment ISA maturing after April 2027 gets penalised for something they did entirely legally under rules since rewritten around them.”
Nouran Moustafa, practice principal & IFA at Roxton Wealth, said the 65-year-old cut-off didn’t make sense.
She added: “The age-65 line is difficult to defend because it has no clear relationship with retirement, income or financial need. Two savers with identical circumstances could face different limits and transfer rights purely because one had a birthday last week. The 22% charge is even more problematic.
“Cash inside a stocks and shares ISA is not always avoidance; it can be a temporary holding while an adviser rebalances, waits for markets to settle or prepares withdrawals. Penalising all interest risks turning sensible cash management into a compliance trap. Existing fixed-term deposits are the clearest fairness issue.
“Where someone entered a legitimate arrangement before the rules were announced and cannot exit without penalty, those holdings should be grandfathered. Otherwise advisers will need to review cash positions much earlier, providers may reduce available options, and ordinary savers will face rules that are harder to understand than the behaviour they are meant to stop.”
Harvey Dhillon, founder and CEO at Zmartly, urged people to check what cash is in their stocks and shares ISA.
He added: “The only money this tax touches is the cash you were keeping safe. Your provider pays it to HMRC. You cannot claim it back. Picture a woman of 68 living on a small pension. Outside an ISA her £400 of interest is tax-free, covered by allowances she is not using. Inside the ISA she loses £88 of it, the full 22 per cent, even though she pays no income tax at all.
“The draft would also cut under-65s to £12,000 of new cash ISA savings a year, while over-65s keep £20,000. So her age protects her allowance, not her interest. Nobody reaches State Pension age at 65 any more, so that line is hard to defend. Nothing in the draft protects a fixed-term cash deposit ending after April 6, 2027, either. The draft is not law yet. In my experience nobody spots a deduction taken before the money arrives. Check what cash is sitting in your stocks and shares ISA before April 6, 2027.”
Evren Ergin, founder and developer at ValuQ, said the new rules would mean savers were nudged towards unnecessary risks.
He added: “Everyone is arguing about the age line. Look at what it does to house deposits. Under 65s are the people saving to buy. Over 65s are overwhelmingly already in a home, often mortgage-free. So the group still trying to get on the ladder has its cash allowance cut to £12,000, while the group that already owns keeps the full £20,000.
“That is the wrong way round. A deposit cannot sit in equities. If you are buying in two years, cash is not timidity, it is the only responsible place for that money. These rules nudge deposit savers toward risk they should not be taking.
“And the alternative on offer is a Lifetime ISA capped at £4,000 a year, with a £450,000 property limit frozen since 2017 and a 25% charge if you buy above it. It is also due to be replaced in 2028. So save hard now and you still cannot be sure of the rules on the day you buy. First-time buyers already face the hardest deposit hurdle in decades. This quietly makes it harder.”
Antonia Medlicott, founder and MD of London-based Investing Insiders, said more clarity was needed.
She added: “The government has overcomplicated ISAs to the point where people with little financial knowledge feel they are inaccessible. ISAs have traditionally been one of the UK’s simplest financial products, but these changes risk undermining that simplicity. Behavioural finance research consistently shows that complexity reduces participation.
“The cash ISA limit should be higher for those approaching retirement, so that it provides them a chance to lower the risk to their money. Less disruption from market volatility allows for firmer retirement plans, and you can already access your private pension by then. As you approach your later years, the appetite for investment risk should naturally reduce, which is the same with a pension.
“More clarity must be provided for people who have their money locked away until after the new financial year begins; it would be a travesty for them to have to pay tax. This requires a clear exemption from tax, or else even more faith will be lost from consumers.”
