ISA changes: what you need to do before 5 April and what is coming next

Two sets of ISA changes are arriving. One is already upon us — dividend tax rises from 6 April 2026. The other lands in April 2027, when savings tax rates go up, the cash ISA limit for under-65s drops, and one type of ISA transfer becomes permanently unavailable. Before any of that, you have a more immediate decision to make.

The tax year ends on 5 April 2026

You have until 5 April 2026. The £20,000 ISA allowance resets at the start of every tax year and cannot be carried forward. Any unused allowance from 2025/26 disappears permanently from 6 April. It does not matter how little or how much you have used so far — the unused portion is gone.

There is no partial carry-forward, no grace period, and no mechanism for reclaiming what is lost. The allowance is a use-it-or-lose-it annual entitlement. If you have not opened or topped up an ISA this tax year, the window is closing fast.

What is changing from 6 April 2026

Dividend tax is rising. The ordinary dividend tax rate increases from 8.75% to 10.75%. The upper rate increases from 33.75% to 35.75%. These changes apply from 6 April 2026 — next week if you are reading this at publication.

Dividend-paying investments held outside an ISA will cost more from that date. Every £1,000 of dividend income from a general investment account will cost a basic rate taxpayer £107.50 in tax from 6 April, up from £87.50 (calculated after the £500 dividend allowance). A higher rate taxpayer will pay £357.50, up from £337.50.

Inside an ISA, dividends are completely free from tax regardless of how much you receive or which tax band you are in. That rule is not changing.

What is changing from 6 April 2027

Three things happen at once from April 2027. They are separate changes but they arrive together, and they all point in the same direction.

Savings tax rates rise. The basic rate on savings income rises from 20% to 22%, and the higher rate from 40% to 42%. These are April 2027 changes, not April 2026 — they are not part of the dividend tax rise arriving this year. The personal savings allowance stays exactly the same: £1,000 for basic rate taxpayers, £500 for higher rate, and £0 for additional rate taxpayers. Cash ISA interest remains permanently tax-free, regardless of these rises.

The cash ISA limit drops for under-65s. From 6 April 2027, anyone under 65 will only be able to put £12,000 into cash ISAs, down from £20,000. The overall ISA allowance stays at £20,000 until at least 2031 — that is confirmed. The remaining £8,000 will need to go into investments rather than cash. Over-65s keep the full £20,000 cash ISA limit.

No transfers from stocks and shares ISAs to cash ISAs will be permitted from April 2027. Transfers from cash ISAs to stocks and shares ISAs will still be allowed. If you have a stocks and shares ISA you want to move into cash, the window to do that is now.

Why 2026/27 is a genuine window

The 2026/27 tax year is the last full tax year in which under-65s can put the full £20,000 into cash. Once April 2027 arrives, the cash limit is fixed at £12,000. That is not a rumour or a proposal — it is confirmed legislation.

The ISA allowance itself is frozen at £20,000 until at least 2031, also confirmed. What is equally confirmed is that from April 2027 the rules tighten in three ways simultaneously. That combination gives 2026/27 a clarity that is worth acting on.

Using the full cash ISA allowance this year shelters savings from both the dividend tax rise already arriving from April 2026 and the savings tax rise coming in April 2027. The tax shelter does not expire each year — money already inside an ISA stays protected indefinitely.

The Lifetime ISA: still worth using, future under review

The Lifetime ISA pays a 25% government bonus on contributions up to £4,000 per year, for eligible first-time buyers under 40. The bonus still applies now and the account functions exactly as it always has.

The government has signalled a review in 2026, with a potential replacement product for first-time buyers under consideration. No replacement has been announced yet. There is no confirmed date for any change and the current rules remain fully in effect.

If you are saving for a first home and are under 40, the LISA remains one of the most efficient tools available. A 25% government bonus is significant, and no replacement product has been named. Its future is under review, which makes using it now — while the current rules apply — more logical, not less.

What to do before 5 April

If you have not used your ISA allowance at all this year, putting even a small amount in before 5 April is better than losing it. A cash ISA opened today still counts. The amount matters less than the act of using the allowance, and the tax-free shelter lasts indefinitely once established.

If you have dividend-paying investments in a general investment account, consider moving them inside an ISA before 6 April when dividend tax rises. The process is called bed-and-ISA: you sell the holding outside the ISA and rebuy it inside. You use your capital gains tax allowance (£3,000 in 2026/27) to manage any gain on the sale. The new dividend tax rates make the maths of staying outside progressively harder to justify.

If you are in the additional rate band and receive dividends outside an ISA, your dividend allowance is already zero. The impact of the rate rise from 6 April is direct and immediate. Every pound of dividend income you receive outside the ISA wrapper will be taxed at the new higher rate from next month.

What to think about through 2026/27

Use the full £20,000 cash ISA allowance this year if cash savings are your priority. It is the last year to do so at this limit. From April 2027, under-65s are capped at £12,000 in cash. The difference between acting now and waiting is £8,000 of permanent additional shelter.

Consider a bed-and-ISA to bring any dividend-paying investments in from the cold. The rising dividend tax rate makes the maths progressively more favourable for assets held inside rather than outside. Each year you delay, the tax cost of holding those assets outside compounds.

If you have a stocks and shares ISA that you have been thinking about moving into cash, the time to act is before April 2027. That transfer direction will no longer be available once the new rules arrive.

A note on salary sacrifice and pensions

Pension salary sacrifice contributions above £2,000 per year will attract employer National Insurance from April 2029. Current rules still apply until then. For most people, the ISA and pension decision does not change right now, but the pension advantage of salary sacrifice is worth maximising while the current rules are in force. The window on that advantage is three years away, not three weeks, but it is worth noting alongside the ISA deadline.