Individual Savings Account

New rules penalize cautious savers The UK Treasury is shaking up the personal finance landscape with drastic ISA policy changes set for April 2027. For years, savers used stocks and shares ISAs to park cash in low-risk assets while waiting to buy equities. The new rules aim to discourage holding idle cash, but the execution introduces frustrating friction for everyday investors. The three pillars of the 2027 crackdown First, for savers under 65, the annual cash ISA allowance drops from £20,000 to £12,000. Second, the government will impose a flat 22% charge on cash interest held inside stocks and shares ISAs. Third, savers can no longer transfer funds from stocks and shares ISAs back into cash ISAs. Defining cash-like assets Under these rules, HMRC defines "cash-like" solely as money market funds. Savers cannot hold an ISA that is 100% cash-like. However, other defensive instruments like short-term gilts, corporate bonds, and exchange-traded funds remain entirely untouched. This selective definition creates a loophole where investors can simply buy 99% money market funds and 1% equities to bypass the restriction. Why the policy misses its target The policy mistakenly presumes money market funds host idle, unproductive cash. In reality, these funds provide critical short-term funding to businesses and the government. Furthermore, the flat 22% tax disproportionately harms basic-rate savers. High-net-worth individuals actually face a lower rate than they would outside the wrapper, while some platforms may stop paying cash interest altogether to avoid the administrative burden. Restructuring your defensive holdings Prudent wealth management requires preparation, not panic. Because gilts and short-term bond funds remain unaffected, they serve as excellent low-risk alternatives. Diversifying out of pure cash-like allocations before the 2027 deadline will protect your portfolio from accidentally breaching compliance and losing tax-exempt status.