Quick Answer
From 6 April 2027, the annual cash ISA limit drops from £20,000 to £12,000 for savers under 65. The overall £20,000 ISA allowance stays the same, but at least £8,000 must go into a stocks and shares, innovative finance, or lifetime ISA. Over-65s are exempt from the change. The 2026/27 tax year (until 5 April 2027) is your last full year to save the complete £20,000 in cash.
What the Cash ISA Limit Change for 2027 Means
The cash ISA limit 2027 change means that from 6 April 2027, under-65s can only put £12,000 per year into a cash ISA, down from £20,000. This was confirmed in the HMRC Tax-free savings newsletter 19 (November 2025) and represents the first cut to the cash ISA allowance since 2017. The government's stated aim is to encourage more people to invest rather than save in cash accounts.
The overall annual ISA allowance of £20,000 is not changing. What changes is how that £20,000 can be split. Under the new rules, under-65s can put a maximum of £12,000 into a cash ISA. The remaining £8,000 must go into a different ISA type: a stocks and shares ISA, an innovative finance ISA, or a lifetime ISA. If you only want to save in cash, your maximum annual ISA contribution from April 2027 is £12,000.
Cash ISA Limit 2027/28 (Under 65)
Overall ISA Annual Allowance
Cash ISA Limit 2027/28 (Over 65)
Who Is Affected and the Important Age Exemption
The cash ISA limit reduction applies only to savers aged under 65. Over-65s are fully exempt and retain the right to save the full £20,000 per year in a cash ISA. This exemption was set specifically to protect older savers who tend to rely more heavily on cash savings and are less likely to shift to investment products.
For agency founders and limited company directors, the relevant question is whether ISA contributions fit into your broader tax planning. Most directors under 65 are in the affected group. If you have historically used your full annual ISA allowance in cash, you will need to make a decision from April 2027 about how to use the remaining £8,000 of the overall allowance.
The change also affects any dependent or family member under 65 who you are helping with ISA planning. Junior ISAs are not affected.
What This Means in Practice: A Director's Worked Example
Consider a 42-year-old agency director who contributes the maximum £20,000 each year into a cash ISA earning 4.5% interest. Under the current rules, the full £20,000 qualifies. From 6 April 2027, she can only contribute £12,000 in cash. She has three options for the remaining £8,000: invest it in a stocks and shares ISA, put it into an innovative finance ISA, or simply not use the full allowance.
If she forgoes the remaining £8,000 of allowance each year, she loses £360 of tax-free interest annually at 4.5% (basic rate tax of £72 saved per year at 20%). Over ten years with compounding, the difference in tax-free growth between using the full allowance versus only the £12,000 cash limit is meaningful, though not dramatic for cash savings specifically.
The real planning decision for a director is not cash ISA versus stocks and shares ISA. It is cash ISA versus company pension. A director contributing £8,000 into a company pension instead of a personal ISA saves corporation tax at 25% on that contribution, making the effective net cost to the business approximately £6,000. That same director could then take the corporation tax saving as additional dividend income later. Running the salary and dividend mix through a calculator first makes the comparison concrete.
The Transfer Restriction Coming in April 2027
From 6 April 2027, under-65s will no longer be able to transfer funds from a stocks and shares ISA or an innovative finance ISA into a cash ISA. This restriction is designed to prevent savers from using existing investment ISA balances as a workaround to the lower cash limit.
Under the current rules, you can transfer between any ISA types in either direction. From April 2027, the direction of travel for under-65s will become one-way for the non-cash types: you can move money out of a cash ISA into a stocks and shares ISA, but you cannot move it back into a cash ISA.
Act before April 2027 if you want flexibility
If you currently hold a stocks and shares ISA and might want to convert it to cash in the future, you need to do that transfer before 5 April 2027. After that date, under-65s cannot transfer back from a stocks and shares ISA into a cash ISA.
The government is also introducing tests to identify "cash-like" holdings in stocks and shares ISAs and a charge on interest accrued on cash sitting in a stocks and shares or innovative finance ISA. These measures are intended to prevent the use of money market funds or cash-equivalent investments in non-cash ISAs as a substitute for a cash ISA.
Cash ISA vs Pension: The Director's Real Decision
For a limited company director, the choice between a cash ISA and a pension is not straightforward. ISAs and pensions serve different purposes and have different tax treatment:
- Access: ISA savings can be withdrawn at any time with no restrictions. Pension savings cannot be accessed before age 55 under current rules, rising to 57 from 6 April 2028. If you are under 50 and building a financial buffer rather than a retirement pot, a cash ISA is more flexible.
- Tax efficiency: A company pension contribution is a deductible business expense. For a director paying corporation tax at 25%, contributing £8,000 into a company pension saves £2,000 in corporation tax, so the net cost to the business is £6,000. By contrast, funding an ISA requires extracting cash from the company as salary or dividends, both of which incur personal tax before you can contribute. The pension wins on pure tax efficiency for most active directors.
- Inheritance tax: From April 2027, unused pension funds will become subject to inheritance tax in most cases. ISA savings, if held at death, are included in your estate and also subject to IHT. Neither shelter entirely, though the specific rules differ significantly.
- Annual allowance: Pension contributions (employer and personal combined) are subject to the annual allowance, currently £60,000. There is no equivalent limit on ISA contributions beyond the £20,000 per year. If you have already used your pension annual allowance, the ISA is the next best tax-free savings option.
For most agency directors actively extracting income from their company, pension contributions made at company level are the more tax-efficient choice up to the annual allowance. The cash ISA (and from April 2027, a mix of cash and investment ISA) remains valuable for accessible, flexible tax-free savings above and beyond what makes sense to put into a pension.
How much of your income is already going into ISAs versus pensions versus dividends? For directors taking dividends close to the higher-rate threshold, the 2026 dividend tax increase guide covers how the recent 2% rate rise affects the maths on ISA funding from dividends. Our guide to pension contributions for limited company directors walks through the maths in detail. For the salary and dividend side of the equation, use the free salary calculator to see how your current extraction mix stacks up.
What Agency Directors Should Do Before the Cash ISA Limit Changes in April 2027
The practical steps depend on your current situation, but here is what most agency directors should be considering now:
- Use the 2026/27 allowance before 5 April 2027. If you have not used your cash ISA allowance for the current tax year, you have until 5 April 2027 to contribute the full £20,000. ISA allowances cannot be carried forward and do not roll over. If you miss the deadline, the opportunity to save the full amount in cash is gone permanently.
- Decide what to do with the £8,000 gap from 2027/28. From 6 April 2027, if you want to save £20,000 per year in ISAs, you need to choose a non-cash ISA for at least £8,000 of it. A stocks and shares ISA with a low-cost global index fund is the most common choice. If you prefer not to invest in equities, simply contributing only £12,000 per year is a valid option.
- Review your pension vs ISA mix. If you are not already maximising company pension contributions, the cash ISA limit change is a good prompt to run the numbers. A pension contribution at company level reduces your corporation tax bill immediately and builds retirement capital. For most directors, this is worth doing before maximising the ISA.
- Transfer stocks and shares ISA to cash ISA before April 2027 if needed. If you hold a stocks and shares ISA and want the option to convert it to cash in the future, do that transfer now, before the reverse transfer restriction takes effect on 6 April 2027.
If your income structure has changed recently and you are unsure whether the current salary-dividend split still makes sense, the annual tax review checklist for directors covers ISA, pension, and extraction planning as part of a complete year-end review.
Not sure how the cash ISA limit change fits into your overall tax planning? Book a free consultation with the Alto team. We specialise in tax planning for agency directors and limited company owners.
Frequently Asked Questions
What is the new cash ISA limit from April 2027?
From 6 April 2027, the annual cash ISA subscription limit for savers under 65 drops to £12,000 per tax year. This was confirmed in the Autumn Budget 2025 and is the first reduction to the cash ISA allowance since 2017. The overall annual ISA allowance remains £20,000, so the remaining £8,000 must go into a stocks and shares ISA, innovative finance ISA, or lifetime ISA.
Can I still put £20,000 in a cash ISA in the 2026/27 tax year?
Yes. The full £20,000 cash ISA allowance remains in place until 5 April 2027. The 2026/27 tax year (6 April 2026 to 5 April 2027) is the last complete year in which you can save the full £20,000 entirely in a cash ISA. From 6 April 2027, the lower £12,000 limit applies for under-65s. If you have not yet used your 2026/27 ISA allowance, doing so before 5 April 2027 means you keep the full £20,000 in cash while the new rules apply only to contributions after that date.
What happens to my existing cash ISA balance after April 2027?
Your existing cash ISA savings are not affected. The £12,000 limit applies only to new contributions made from 6 April 2027 onwards. Any amount already held in a cash ISA continues to earn tax-free interest indefinitely, regardless of its size. You can continue to hold, manage, and withdraw from your existing cash ISA as normal.
Are over-65s affected by the cash ISA limit change?
No. Savers aged 65 and over are fully exempt from the reduction. They retain the right to subscribe up to £20,000 per tax year into a cash ISA. The limit change targets under-65s specifically, reflecting the government's aim to nudge working-age savers towards investment-based ISAs.
Can I transfer from a stocks and shares ISA to a cash ISA after April 2027?
No. From 6 April 2027, transfers from a stocks and shares ISA or an innovative finance ISA into a cash ISA will not be permitted for under-65s. This restriction prevents savers from using transfers as a workaround to the lower cash ISA limit. Transfers from a cash ISA into a stocks and shares ISA will still be allowed.
Does the £12,000 cash ISA limit include the Lifetime ISA?
No. The Lifetime ISA has its own separate £4,000 annual limit and is treated as a distinct ISA type. If you are under 40 and eligible for a Lifetime ISA, you can contribute up to £4,000 to a Lifetime ISA and up to £12,000 to a cash ISA, with the remainder of the £20,000 overall allowance available for stocks and shares or innovative finance ISAs.
Should a limited company director use a cash ISA or a pension?
For most limited company directors, a pension contribution made through the company is significantly more tax-efficient than funding a cash ISA from post-tax dividend income. A company pension contribution is a deductible business expense, reducing corporation tax at 25% (or 19% for smaller profits). By contrast, ISA contributions come from income that has already been taxed, whether salary or dividends. That said, ISAs offer more flexibility: there is no minimum access age, no restrictions on withdrawal, and no annual allowance taper to worry about. The right answer depends on your income level, age, and how much flexibility you need.
What if I am not comfortable investing in stocks and shares?
You are not required to invest the remaining £8,000 anywhere. You can simply choose to save less than £20,000 per year from 2027 onwards. The cash ISA limit is a cap on what you can put into a cash ISA, not a requirement to invest the rest. If you want to save the full £20,000 tax-free from April 2027, you will need to use a non-cash ISA for at least £8,000 of it. If you prefer cash only, your maximum annual ISA saving will be £12,000.