The UK government is implementing significant changes to its Individual Savings Account (ISA) system, impacting both cash savers and first-time homebuyers. From April 2027, individuals under 65 will see their annual cash ISA allowance cut from £20,000 to £12,000. This reduction, announced in Autumn Budget 2025, will be accompanied by new anti-circumvention rules, including a 22% flat-rate charge on interest earned on cash held within stocks and shares ISAs, a ban on holding 100% of a stocks and shares ISA in money market funds, and a prohibition on transfers from stocks and shares ISAs into cash ISAs for those under 65.
Separately, a consultation is underway for a new First Time Buyer ISA (FTB ISA) to replace the existing Lifetime ISA (LISA), which has faced criticism since its 2017 launch. The new FTB ISA aims to simplify the product by paying the government bonus only at the point of home purchase, eliminating withdrawal penalties. It also removes the upper age limit for opening an account, addressing issues with the LISA's age 40 cutoff. However, key details like the annual subscription limit, the exact government bonus level, and the property price cap for the FTB ISA are yet to be announced. The current LISA property price cap of £450,000, unchanged since 2017, is considered outdated, particularly in London and the South East.
For existing LISA holders, direct transfers to the new FTB ISA will not be permitted, though both products can be used for the same home purchase. Those with a Help To Buy ISA (discontinued in 2019) will be able to transfer funds into the FTB ISA, subject to subscription limits. A significant change with the FTB ISA is that savers will miss out on the compounding effect from annual bonus payments, as the bonus will only be applied at the time of purchase, potentially leading to a real-life loss of wealth-building ability compared to the LISA. Critics argue that these changes introduce further complexity and could deter savers and investors, as platforms have been pushing for simpler alterations rather than an entirely new product.
