The ISA allowance is changing from April 2027 in a bid to encourage more people to invest. But should you prioritise putting your money into a stocks and shares ISA over a cash ISA? The expert financial advisers at George Square answer some of our most frequently asked ISA questions.
An ‘ISA’, or Individual Savings Account, is a tax-efficient wrapper offered under Government legislation as a way of encouraging people to save.
There are two types of ISA available – the Cash ISA and the Stocks and Shares ISA. Generally, with ISAs, you have instant access to your savings, and you can transfer them between providers as often as you like (subject to your providers’ rules).
What can you include in an ISA?
Cash ISAs can include:
- Savings in bank and building society accounts
- Some National Savings and Investments products
Stocks and shares ISAs can include:
- Shares in companies
- Unit trusts and investment funds
- Corporate bonds
- Government bonds
What is the ISA limit?
Currently, individuals aged 16 and over can save up to £20,000 each year into a cash ISA without having to pay tax on it. For those aged 18 and over, you can allocate your £20,000 allowance across cash, stocks and shares, or any combination of the two. However, any unused allowance cannot be carried over to the next tax year, and so will be lost.
There’s still a very small window left before 6 April 2026 to use your remaining ISA allowance for this tax year – don’t forget, use it or lose it!
What’s changing from 6 April 2027?
The overall £20,000 ISA annual allowance isn’t changing, but the limit for how much of that allowance can be saved in a cash ISA will reduce to £12,000 from the 2027/28 tax year for anyone under the age of 65.
- You’ll be able to put up to £12,000 in a cash ISA each tax year.
- The remaining allowance (up to £8,000) could go into a stocks and shares ISA.
- Or, you can choose any combination that suits you – for example, you could put £5,000 in a cash ISA and £15,000 in a stocks and shares ISA – as long as you don’t exceed the £12,000 limit in a cash ISA and your total across both types of ISAs doesn’t go over the £20,000 total ISA allowance.
- The annual limit for stocks and shares ISAs remains at £20,000.
For those aged 65 or over, these changes don’t apply. The changes only apply to new contributions from 6 April 2027 onwards, so you still have the final weeks of this tax year and the 2026/27 tax year to save up to £20,000 in a cash ISA tax-free, if that’s right for you.
Separate to the changes announced for ISAs, from April 2027, the income tax you pay on interest received from savings, (over your personal savings allowance and outside of ISAs) will increase to 22% for basic-rate taxpayers, 42% for higher-rate taxpayers and 47% for additional-rate taxpayers.
Will the changes in 2027 affect my current ISA savings?
Any money already saved in your cash ISA from this year, or previous years, will stay protected and continue to earn tax-free interest.
Is the Junior ISA allowance changing?
No changes have been made to the Junior ISAs allowance, which remains at £9,000 each tax year per child.
A cash ISA or stocks and shares ISA – which is best?
The question here really is should you save or invest, or both. This is, of course, very dependent upon your specific circumstances. We are typically risk averse as a nation, with a recent report from the Social Market Foundation (SMF) finding that only 8% of household wealth in the UK is held directly in equity investments – the lowest in the G7 – whilst the amount of savings held in cash or low-interest accounts, beyond emergency funds, is worth £430 billion.
The SMF cites low financial literacy and confidence is a key problem, with many people reporting that they don’t know enough to invest or incorrectly believe that they do not have enough money to do so.
Stocks and shares ISAs can allow long term investment in a broad spread of assets. A stocks and shares ISA protects you from two main taxes: Capital Gains Tax on profits made that year above the current £3,000 per year allowance and Dividend Tax on income from shares or funds above the current £500 per year allowance. A cash ISA, on the other hand, protects the interest earned on savings from Income Tax.
When you’re deciding how to split your allowance or what to prioritise, a good tip is to look at which part of your savings or investments is most likely to exceed your annual tax allowances. If the answer is both, then – because investments typically offer greater long‑term growth – it is likely that investing will be your priority.
As with any investment, you must remember that past performance is not a guide to, nor does it guarantee, future performance. You should be aware that the value of an investment can fall as well as rise and that investors may not get back the amount they invested.
Generally, we advise not to invest any money that you need in the short term. Shares are unpredictable, and you don’t want to be forced to take your money out during a volatile time.
Can you transfer from stocks and shares ISA to a cash ISA, and vice versa?
Right now, you can transfer money between ISAs. From April 2027, you’ll still be allowed to transfer money from a cash ISA to a stocks and shares ISA, but when they drop the cash ISA limit, you will no longer be able to move from shares to cash (if you’re under 65).
Can you have a cash ISA and a stocks and shares ISA in the same year?
Yes, you can mix and match. For instance, under the current allowance, you could have £1,000 in a cash ISA and £19,000 in a stocks and shares, or vice versa.
Can I switch ISA providers?
You can transfer all or part of the savings in your Individual Savings Account (ISA) from one provider to another at any time. It can be to a different type of ISA or the same type, and the investment can have been made this year or in previous years.
To switch providers, you’ll need to contact the ISA provider you want to move to and fill out an ISA transfer form to move your account. Please note: if you withdraw the money without doing this, you will not be able to reinvest that part of your tax-free allowance again.
Professional advice
George Square Financial Management provides comprehensive, impartial investment advice to individuals, trusts, families, charities and businesses.
To find out how to make the most of your tax-free ISA allowance, speak to one of our independent financial advisers on 0115 947 5545 or send us a message here.