Time to get your ISA and savings ducks in a row

Time to get your ISA and savings ducks in a row

With higher interest rates, more people now have cash sitting in ordinary bank accounts earning decent interest. That sounds like good news, and in many ways it is. However, interest earned outside an ISA can also create a tax bill.

In other words, the money may be “just sitting there”, but HMRC may still be politely pulling up a chair.

What is changing with ISAs?

For the 2026/27 tax year, the overall ISA allowance remains £20,000.

From 6 April 2027, the Cash ISA allowance for savers under 65 is due to reduce to £12,000. The overall ISA allowance is expected to remain £20,000, meaning the remaining allowance could still be used in other eligible ISA types, such as a Stocks and Shares ISA.

For savers aged 65 and over, the Cash ISA limit is due to remain at £20,000.

There are also planned rules to prevent savers from simply using other ISA wrappers to hold cash and get around the lower Cash ISA limit. This means it will be more important to understand what type of ISA you have, what it holds, and whether it still suits your circumstances.

Why this matters now

The changes are coming from April 2027, but the time to review your position is before the end of the 2026/27 tax year.

ISA allowances are “use it or lose it”. If you do not use your allowance before the tax year ends, you cannot carry it forward.

That does not mean everyone should rush off and open accounts left, right and centre. This is not supermarket sweep, and sadly there is no inflatable banana prize at the end. It simply means it is sensible to check where your savings are held and whether you are making proper use of the tax-free options available.

Do not forget ordinary bank interest

This is not just about ISAs.

Many clients have cash sitting in ordinary bank accounts, savings accounts, business reserve accounts, or fixed-rate bonds. In recent years, interest rates have meant that these accounts may be generating more interest than they used to.

That can be useful, but it can also create an unexpected tax charge.

Savings interest outside an ISA is taxable once it goes above the tax-free allowances available to you. The amount of tax you pay depends on your overall income and tax rate.

Broadly, the Personal Savings Allowance is:

• £1,000 for basic-rate taxpayers;

• £500 for higher-rate taxpayers;

• £0 for additional-rate taxpayers.

So, if you have a large cash balance earning interest in a normal bank account, some of that interest may need to be reported and taxed. Depending on your income, the tax could be at 20%, 40%, or 45%.

This often catches people out because the money may not feel like “income”. It may simply be savings that have been left untouched. However, from a tax point of view, the interest earned on that cash can still count as taxable income.

Put simply: cash in the bank can still create a tax bill. It may be quiet, but it is not always innocent.

Why this can affect your tax return

If you complete a Self Assessment Tax Return, taxable savings interest may need to be included.

That means clients who have built up cash outside an ISA could find that their tax bill is higher than expected when their 2026/27 tax return is prepared.

This can be particularly relevant for:

• directors holding large personal cash balances;

• landlords with funds set aside for repairs or tax bills;

• retirees with savings outside ISAs;

• higher-rate taxpayers;

• clients with fixed-rate bonds maturing;

• anyone who has money spread across several savings accounts;

• clients who have not reviewed their ISAs for a few years.

A few pounds of interest is unlikely to cause sleepless nights. Larger balances, however, can soon add up, and HMRC is not known for saying, “Don’t worry, we’ll let this one slide because you seem nice.”

What should you check?

Before the end of the tax year, it is worth reviewing:

1. How much cash you hold in ordinary bank or savings accounts

If you have money earning interest outside an ISA, check whether that interest may exceed your available savings allowance.

2. Whether you have used your ISA allowance

The annual ISA allowance is valuable because income and gains within an ISA are tax-free. If you do not use the allowance before the tax year ends, it is lost.

3. Whether your Cash ISA is still competitive

Some older Cash ISAs pay poor rates. It may be worth checking whether your ISA is still working hard for you, rather than lounging around like it is on an all-inclusive holiday.

4. Whether you are holding cash in the right place

Cash may be appropriate for short-term needs, emergency funds, or upcoming tax bills. Longer-term savings may need a different approach, depending on your goals and attitude to risk.

5. Whether your savings are held in the most tax-efficient way

Sometimes the issue is not just what account the money is in, but whose name it is held in, how much interest it is generating, and whether available allowances are being used properly.

Cash ISA or Stocks and Shares ISA?

Cash ISAs can be useful for short-term savings and for people who do not want investment risk.

Stocks and Shares ISAs may be more suitable for longer-term money, but they can rise and fall in value. They are not the right answer for everyone, and they should not be used just because the Cash ISA rules are changing.

The important point is to review your position calmly and sensibly. Tax planning should not involve panic, guesswork, or throwing money into something just because a headline told you to.

Our recommendation

We recommend that clients take a few minutes to pull together details of:

• current account balances;

• ordinary savings account balances;

• Cash ISA balances;

• Stocks and Shares ISA balances;

• fixed-rate bonds;

• expected interest for the year;

• any large upcoming payments;

• whether the money is needed short term or long term.

Once you have this information, we can help you understand whether your current setup is likely to create a tax issue and whether there are sensible steps to consider before 5 April 2027.

Final thought

ISAs remain one of the simplest tax-efficient savings tools available, but the upcoming changes mean it is worth being more organised than usual.

The main message is simple: do not leave it until your tax return is being prepared to discover that your savings interest has created an unexpected tax bill.

Getting your ISA and savings ducks in a row now could help you make better use of your allowances, reduce avoidable tax on savings interest, and prevent an unwelcome surprise later.

And frankly, when it comes to tax, most of us prefer our surprises to come in the form of a birthday cake, not a bigger bill from HMRC.