The cash ISA allowance cut is just one of many rules coming into force
ISA rules are changing – but some people will be exempt.
A number of cash ISA rules will be changing from April next year, with the majority of updates meant to encourage more people to invest their money rather than saving it in cash accounts. The most notable will be a drop in cash ISA allowances from £20,000 to £12,000, which was announced by Chancellor Rachel Reeves in the Budget last year.
However, new rules and updates are now being consulted on to close any potential loopholes and highlight the different ways it will apply to people depending on when they were born. Many of the new rules will only apply to people who are under the age of 65.
Because the changes will come into force next April, this means everyone born after 1962 will be affected initially. Some of key changes that will affect people under 65.
These are:
- Cash ISA limit cut from £20,000 to £12,000
- No longer able to transfer money from non-cash ISAs to a cash ISA
Currently, the government is proposing that from the start of the tax year you turn 65 these two rules will reverse according to MoneySavingExpert, restoring your £20,000 limit and allowing you to transfer from non-cash ISAs to cash ISAs. For example, if you are born in May 1963 that means you will turn 65 in May 2028.
So you will get the £20,000 limit back from April 2028, the start of the new tax year in which you turn 65. This rule will allow older savers to protect their cash from the risks of investment.
However, there are some new potential rules being consulted on that will still apply to people over the age of 65. These additional rules have been put in place to prevent people from using non-cash ISAs like cash ISAs after the new allowance limit starts.
This includes:
- 22% charge on interest made for cash held in non-cash ISAs
- Money Market Funds can be held as investment if they don’t make up 100% of the non-cash ISAs value
- ‘Cash-like assets’ will be defined as Money Market Funds
The other annual limits for ISAs will remain the same. These are currently:
- £20,000 for stocks and shares ISAs
- £20,000 for innovative finance ISAs
- £4,000 for Lifetime ISAs
- £20,000 for the overall annual ISA limit
However, the Government has also announced this week that it has plans to potentially replace the Lifetime ISA with a First-Time Buyer ISA. Although more details on this are still due to be released.
