The Cash ISA Cut, and What Replaces the Lifetime ISA

This article is general information, not financial advice. One of the changes below is still under consultation and may not land exactly as described, so check current government guidance before acting on any of it.

Two dated changes are coming to the ISA system, and between them they quietly date most of the ISA guidance in circulation. The cash ISA annual limit is cut from April 2027, and the Lifetime ISA is being replaced from around April 2028. Here is what each one actually says, how settled each one is, and what to do about them, with the sources named.

The Cash ISA Cut, From 6 April 2027

From 6 April 2027, the amount you can put into a cash ISA in a tax year falls from £20,000 to £12,000 if you are under 65. The overall £20,000 ISA allowance does not change: the remaining £8,000 can still be used, but only in a Stocks and Shares ISA, an Innovative Finance ISA or a Lifetime ISA. From the tax year in which you turn 65, you keep the full £20,000 cash limit. This one is announced with a published GOV.UK factsheet behind it, so it is the firmer of the two changes.

The factsheet also sets out anti-circumvention rules arriving at the same time, and they close the obvious workarounds before anyone tries them: a flat 22% charge on interest paid on cash held inside a non-cash ISA, a bar on a non-cash ISA portfolio being made up entirely of cash-like assets, with money market funds the defined cash-like asset, and no transfers from a non-cash ISA into a cash ISA for the under-65s. The transfer bar does not apply to those aged 65 and over.

What the cut changes is what you can add each year, and for a cash-heavy saver under 65 that makes the arithmetic worth doing now rather than in 2027: the 2026/27 tax year still carries the full £20,000 cash limit, and from April 2027 an extra £8,000 a year of the allowance can only be sheltered by accepting investment risk or leaving it outside an ISA.

The Lifetime ISA Is Replaced, From Around April 2028

The Lifetime ISA is being scrapped and replaced by a First Time Buyer ISA, aimed only at buying a first home. The retirement purpose goes. HM Treasury consulted on the design from 22 June to 18 August 2026, and the detail is not final until the government responds, so treat everything in this paragraph as the proposal rather than the law: a product open to first-time buyers aged 18 and over with no upper age limit, available as cash or Stocks and Shares, with no 25% withdrawal penalty, and with the bonus paid as a lump sum at purchase rather than year by year.

If you already hold a Lifetime ISA, the position is better than the headline suggests: you can keep paying into it indefinitely and keep the 25% bonus. What you cannot do is transfer an existing Lifetime ISA into the new product. So opening one now can still be worth it, particularly for a first home inside the next few years. Building a ten-year plan around the current Lifetime ISA rules is a different matter, because the product the plan assumes will not exist in its current form.

The Changes Around Them

• Income tax thresholds stay frozen, which pulls more people into higher bands with every pay rise and quietly makes both pensions and ISAs more valuable, not less.
• From 6 April 2029, the National Insurance exemption on salary-sacrificed pension contributions is capped at £2,000 a year. Salary sacrifice still works, and an employer match is unaffected; the extra saving above £2,000 a year is what shrinks.
• The High Income Child Benefit Charge stays as it is: £60,000 to £80,000, based on individual rather than household income. Worth saying because plenty of coverage suggested otherwise.

What It Changes About a Plan

The order of operations does not change: expensive debt, then the emergency fund, then the pension match, then investing by timescale. What changes is which wrapper holds the money at the end of that order. The UK personal finance flowchart stays current for exactly this reason: it names the parts of the answer that are already scheduled to change, with dates, which is what quietly dates the static copies of the chart in circulation.

The pension side of the wrapper question matters more after both changes, not less, and pension or ISA: which should come first works through that order properly.

One thing worth knowing if you model your savings forward: CrestCast's spare cash waterfall already carries the cut as a schedule rather than a single number. A cash ISA step is capped at £20,000 for the 2026/27 tax year and £12,000 from 2027/28 for an under-65, and someone 65 or over keeps the full limit from the tax year they turn 65. A forecast that quietly assumed £20,000 a year into cash for the next decade would over-save into an allowance that stops existing in eight months.