HMRC Closes Cash ISA Loopholes (April 2027)

HMRC has confirmed a series of rule changes designed to shut down potential workarounds to the new £12,000 Cash ISA allowance coming into force from April 2027. The crackdown follows warnings that existing ISA rules could allow savers to legally exceed the cap using transfers or by holding large amounts of cash inside Stocks & Shares ISAs.

What’s changing?

In a bulletin published today, HMRC announced three major measures:

1. Transfers into Cash ISAs will be blocked
   Savers will no longer be able to transfer money from Stocks & Shares ISAs or Innovative Finance ISAs into Cash ISAs.
   This removes a clear gap where someone could pay £12,000 into a Cash ISA and £8,000 into a Stocks & Shares ISA, then immediately transfer the latter across — effectively rebuilding the old £20,000 cash limit.

2. A new charge on cash interest inside investment ISAs
   Platforms that pay interest on uninvested cash inside a Stocks & Shares or IFISA will have this interest treated as taxable, with HMRC applying a charge.
   This closes the second workaround, where savers could simply open a Stocks & Shares ISA, avoid investing altogether, and earn tax-free interest on parked cash.

3. ‘Cash-like investment’ tests introduced
   HMRC will apply new criteria to determine whether an investment behaves like cash.

   This could affect:

   • money market funds

   • short-dated bond funds

   • other low-volatility products that might be used as de-facto cash substitutes within a Stocks & Shares ISA

Why now?

The moves follow the Chancellor’s announcement in last week’s Autumn Budget that the Cash ISA allowance will fall from £20,000 to £12,000 for under-65s. Over-65s remain exempt and can still contribute up to £20,000 per year.

Analysts immediately identified two gaps in the legislation:

• ISA transfer rules, and

• platform interest on uninvested cash.

Both created opportunities for savers to keep holding £20,000 or more in cash inside tax-free wrappers despite the new limit.

Industry criticism

Jason Hollands, managing director at Bestinvest, said the changes were “predictable” but warned that genuine investors would be caught by the new rules — particularly those who temporarily move to cash while waiting for markets to stabilise.

He also flagged that the new “cash-like” tests create fresh uncertainty around the eligibility of money market funds and short-dated bonds inside Stocks & Shares ISAs.

When do the changes take effect?

All three measures will come into force from April 2027, aligning with the new Cash ISA cap.

DepositScout take

This is a significant shift. Savers will no longer be able to rely on transfers or platform cash balances to maintain higher tax-free savings levels. For anyone currently holding large amounts of cash inside a Stocks & Shares ISA — or planning to — these rules make it even more important to review your long-term savings strategy.

We’ll continue tracking all ISA-related rule changes following the Autumn Budget.