Understanding the latest ISA rules – what savers need to know

Individual Savings Accounts (ISAs) remain one of the most tax efficient ways to save and invest and recent rule changes have made them even more flexible.  With further reforms planned from April 2027, now is a good time to review how you use your ISA allowance.

Recent ISA changes

Several changes were introduced in 2024, designed to modernise the ISA system. These include:

• Fractional shares can now be held within a Stocks and Shares ISA.
• You can open more than one ISA of the same type in the same tax year.
• Partial ISA transfers between providers are now permitted.
• The minimum age for opening an adult ISA has increased to 18.

These updates provide greater flexibility when managing your savings and investments.

Changes coming in 2027

From April 2027, further reforms will take effect:

• The overall annual ISA allowance will remain at £20,000.
• For people under 65, the maximum that can be held in a Cash ISA will be capped at £12,000.
• Those aged 65 and over will still be able to hold up to £20,000 in cash if they wish.

The cash cap only applies to Cash ISAs. Investors will still be able to use the full £20,000 annual allowance in a Stocks and Shares ISA or an Innovative Finance ISA. The government has also confirmed that the £20,000 ISA allowance will remain frozen until 2030.

Greater flexibility for savers

Investors can now purchase fractional shares within a Stocks and Shares ISA, making it easier to invest in companies with higher share prices. If you transfer your ISA to another provider, any fractional shares will usually need to be sold and repurchased although any gains remain tax free because the transactions take place within the ISA wrapper.

You can also pay into multiple ISAs of the same type during the same tax year, provided your total contributions do not exceed £20,000. This makes it easier to shop around for better interest rates or to spread your investments across different providers.

Partial transfers are now permitted too, allowing you to move only part of your ISA savings instead of transferring the entire balance.

Lifetime and Junior ISAs

There are four main ISA types available in 2025/26:

• Cash ISAs
• Stocks and Shares ISAs
• Innovative Finance ISAs
• Lifetime ISAs (LISAs)

A LISA offers a 25% government bonus of up to £1,000 a year.  Contributions are limited to £4,000 per tax year, and you can only pay into one LISA each year. Funds can be used towards purchasing a first home worth up to £450,000 or accessed from age 60 for retirement.

Those aged 16 or 17 can no longer open an adult Cash ISA but can still save into a Junior ISA, which has an annual allowance of £9,000 before automatically converting into an adult ISA at age 18.

Making the most of your allowances

Using your ISA allowance early in the tax year gives your money more time to benefit from tax free interest or investment growth. If you're switching providers, always use the official ISA transfer service rather than withdrawing funds yourself. This preserves your tax free status and ensures you don't accidentally use up your annual £20,000 allowance.

With the allowance frozen until 2030 and further reforms on the horizon, reviewing your ISA strategy now could help you make the most of these valuable tax-efficient savings opportunities.