ISA Allowance Dropping to £12,000 From April 2027 — What You Need to Know

Major change ahead for UK savers. From April 2027, the annual ISA allowance is being cut from £20,000 to £12,000 for most people. Only savers aged 65 and over will keep the current £20,000 limit. Here’s what the change means for you, and what you can do now to prepare.

What’s Changing?

The UK government announced that from the 2027/28 tax year onwards, the standard ISA allowance will drop from £20,000 to £12,000. This is the first reduction in the ISA allowance since ISAs were introduced in 1999. The change applies to all ISA types — cash ISAs, stocks and shares ISAs, innovative finance ISAs, and Lifetime ISAs (which keeps its separate £4,000 sub-limit within the new £12,000 total).

The exception is for over-65s, who will retain the full £20,000 allowance — a recognition that older savers often rely more heavily on ISA income in retirement.

When Does It Take Effect?

The new £12,000 limit starts from 6 April 2027. That means you still have two full tax years at the current £20,000 level:

• 2025/26 tax year (now until 5 April 2026): £20,000 allowance — use it before it expires
• 2026/27 tax year (6 April 2026 to 5 April 2027): £20,000 allowance — your last full year at this level
• 2027/28 tax year onwards: £12,000 allowance (£20,000 for over-65s)

How Much Could You Lose?

The difference is significant over time. If you currently max out your ISA each year at £20,000, the reduced allowance means £8,000 less per year going into your tax-free pot. Over 10 years, that’s £80,000 less sheltered from tax. At a 4% return, that could mean missing out on over £12,000 in tax-free growth.

For higher-rate (40%) and additional-rate (45%) taxpayers, the impact is even larger, as the tax savings from ISAs are proportionally greater.

What Should You Do Now?

1. Max out your 2025/26 allowance before 5 April 2026. You have less than four weeks. Even partial contributions help — every pound in an ISA is a pound that grows tax-free forever.
2. Plan to max out 2026/27 as well. From April 2026, you get another £20,000. Make a plan to use it throughout the year rather than scrambling at the deadline.
3. Consider stocks and shares for long-term growth. With lower future allowances, it makes sense to maximise the growth potential of what you can shelter. If you have a 5+ year horizon, equities have historically outperformed cash.
4. Review your overall tax strategy. With less ISA space available, you may need to think about other tax-efficient wrappers like pensions (where you also get tax relief on contributions) or premium bonds.
5. Don’t forget existing ISAs. Money already in ISAs stays tax-free regardless of the allowance change. Your existing ISA pot is safe.

Will Existing ISA Money Be Affected?

No. The allowance change only affects new contributions from April 2027 onwards. Any money already sitting in your ISAs continues to grow tax-free with no limit. Transfers between ISA providers also remain unaffected and don’t count towards your allowance.

The Bottom Line

The ISA allowance cut is a significant shift in UK savings policy. The best response is to act now: use your full £20,000 allowance in 2025/26 and again in 2026/27 while you still can. Once those tax years close, the opportunity is gone for good. Think of it as front-loading your tax-free savings before the door gets narrower.

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