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📍 Quick Answer — TL;DR
For over-60s, an ISA in 2026 is no longer just a savings pot — it is a tax-free income stream. With the Personal Savings Allowance frozen and interest rates at 3.9–4.4%, even modest savings outside an ISA now trigger HMRC tax. Top easy-access Cash ISAs currently pay 4.40% AER (Trading 212), while income-focused Stocks & Shares ISAs hold blue-chip stocks yielding over 8%. Savers aged 65 or over by April 2027 are permanently exempt from the incoming £12,000 Cash ISA cap — the full £20,000 cash allowance is yours indefinitely.
✅ 65+ by April 2027: Full £20k cash allowance kept forever — you are exempt from the cap.
⚠️ Under 65 by April 2027: This is your last year to deposit the full £20k into cash. Act before 5 April 2027.
🚨 April 2026: AIM ISA IHT relief slashed from 100% to 50%. Review any AIM portfolio immediately.
📋 IN THIS GUIDE
Over-60s ISA & Retirement Savings: Income, Protection & Legacy in 2026
Retirement planning after 60 isn't just about accumulation — it's about protection, income generation, and legacy. In 2026, the ISA landscape for retirees is undergoing a seismic shift. With the 2027 Cash ISA Cap looming and significant IHT rule changes already live from April 2026, over-60s must navigate a two-tier system designed to reward those who plan ahead.
Below: live February 2026 rates, the exact strategy implications of the incoming 2027 cap by age, the Additional Permitted Subscription rules for widows and widowers, and everything you need to know about the April 2026 AIM ISA IHT change.
🚨 THREE CRITICAL CHANGES AFFECTING OVER-60s RIGHT NOW
🚨 April 2026: AIM ISA IHT relief halved
As of 6 April 2026, IHT relief on AIM shares held in an ISA has been cut from 100% to 50%. If you hold AIM shares for estate planning purposes, your strategy needs an immediate review.
⏰ 5 April 2027: Cash Cap arrives for under-65s
If you are under 65 by April 2027, your annual Cash ISA contributions will be permanently capped at £12,000. This tax year (2026/27) is the last year to shelter a full £20,000 in cash.
💰 PSA erosion: ISA now more valuable than ever
The Personal Savings Allowance is frozen at £1,000 (basic rate) / £500 (higher rate). With rates at 3.9–4.4%, just £25,000 in standard savings now triggers tax. Your ISA is your most powerful defence.
Why the ISA Is the Most Critical Retirement Tool You Own in 2026
For over-60s, the ISA has evolved from a savings account into something far more powerful: a tax-free income engine running alongside your pension and State Pension. Here is why the current environment makes it more valuable than at any point in the scheme's history.
The Personal Savings Allowance trap
💡 The Tax-Free Retirement Paycheque Strategy
Many retirees use their ISA to create a synthetic “13th paycheque” — choosing providers that pay interest monthly directly to a current account. This sits alongside State Pension and any private pension drawdown as a 100% tax-free income stream.
📊 Example: £60,000 ISA at 4.40% AER
= £2,640/year interest = £220/month tax-free income paid directly to your bank account — with Paragon's monthly interest option.
ISA vs pension: The retirement income comparison
🎯 The retirement ISA sweet spot
ISAs and pensions work best together. Use your pension for the 25% tax-free lump sum, keep the rest in pension drawdown for tax-efficient annual withdrawals, and use your ISA for fully tax-free supplementary income — especially during years when pension income would push you into a higher tax band.
The 2027 Cash ISA Cap: Why 65 Is the Magic Number
The 2025 Autumn Budget officially created a two-tier ISA system for cash savers. Your age relative to April 2027 determines which tier you fall into — and the difference is stark. Here is exactly what happens, who is affected, and what you must do before the deadline.
✅ The grandfathering rule (confirmed by HMRC): The cap only restricts new money deposited after April 2027. Every pound already inside your Cash ISA remains tax-free indefinitely — regardless of balance size. A £200,000 cash ISA built over the years is completely untouched by the cap.
Top-Pick ISAs for Over-60s: Live Rates & Fees — February 2026
Retirees generally seek two things from their ISA: reliable cash income from high-rate savings, or dividend income from blue-chip equities held tax-free. Below are the top-rated providers for each approach.
⚠️ Rates verified as of 20 February 2026 and are variable. Always confirm the current rate with the provider before opening. Dividend yields fluctuate with share prices — figures are indicative.
Best Cash ISAs for Retirement Income
Ideal for savers who want guaranteed, predictable income — either retained within the ISA or paid monthly to a current account as a pension supplement.
Best Stocks & Shares ISAs for Dividend Income
In retirement, “Income” funds are often more appropriate than “Growth” funds. The UK market is seeing a resurgence in high-yielding blue-chip stocks in 2026. With dividend tax now at 35.75% outside an ISA for higher-rate payers, keeping these holdings inside a Stocks & Shares ISA is essential.
⚠️ Capital at risk. Dividend yields fluctuate with share price movements. The stocks mentioned are illustrative of available yields — not a recommendation. Speak to a regulated financial adviser before investing.
💡 The dividend tax advantage in 2026: A retiree holding Legal & General shares yielding 8.4% on £20,000 receives £1,680/year in dividends. Inside an ISA: £0 tax. Outside an ISA at the higher rate: £600.60 tax (35.75%). The ISA provides an annual tax saving of over £600 on a single £20,000 position.
Inheriting an ISA Allowance: The Additional Permitted Subscription Explained
The Additional Permitted Subscription (APS) is one of the most powerful retirement planning tools available — yet it remains one of the least understood rules among over-60s. When a spouse or civil partner dies, the survivor does not just inherit assets; they inherit a one-off tax-free ISA allowance equal to the entire value of the deceased's ISA.
How the APS works
🏦 It's an allowance — not the actual cash
Even if the deceased left their ISA money to someone else in their will (e.g. to children), the surviving spouse still receives the APS allowance. The allowance and the assets are completely separate — you can use other money to fill it.
⏰ 3-year deadline — do not miss it
You must use the APS within 3 years of the date of death, or within 180 days after the estate administration completes — whichever is later. Missing the window means the extra allowance is permanently lost. Banks are not required to remind you.
✅ 2026: In-Specie transfers now widely available
Many UK banks now support “In-Specie” APS transfers — meaning you can move the actual investment assets (shares, funds, ETFs) directly into your own ISA without selling and rebuying. This avoids crystallising gains or losing market exposure during the transfer.
The step-by-step APS process
⚠️ APS does not mean ISA inheritance for other beneficiaries
The APS applies only to a spouse or civil partner. If your ISA passes to children or other beneficiaries on your death, they do not receive an APS — the ISA forms part of the estate and may be subject to Inheritance Tax at 40%. This is why the April 2026 IHT changes (covered below) are so significant for estate planning.
Inheritance Tax & ISAs: The April 2026 Rule Change You Must Understand
ISAs have always had a hidden IHT weakness: while they are completely free from Income Tax during your lifetime, they are included in your estate for the 40% Inheritance Tax calculation on death. In April 2026, one of the popular workarounds for this — the AIM ISA strategy — has been significantly curtailed. Here is what changed and what to do about it.
What changed — the AIM ISA rule
📋 How ISAs are normally taxed on death
Standard ISA: Included in your estate at full value. Subject to 40% IHT above the nil-rate band (£325,000 individual or £500,000 with residence nil-rate band for a main home passed to children).
Spouse/civil partner exception: ISA passes IHT-free to a surviving spouse via the APS. IHT only arises when the second spouse dies.
Previously: AIM ISA exception: Investing in AIM-listed shares gave 100% Business Property Relief after 2 years, making them IHT-free. This is now 50% relief — an effective 20% IHT rate.
IHT mitigation strategies for over-60s in 2026
Gifting from surplus income
Regular gifts made from income (not capital) are immediately exempt from IHT — no 7-year waiting period. For retirees with ISA income supplementing pension income, directing surplus interest or dividends to family can be a powerful IHT-free gifting strategy. The 2026 AIM change makes this more attractive than ever as an alternative.
The 7-year gifting rule
Withdrawing ISA funds and gifting the cash starts the 7-year IHT taper clock. This strategy involves trading ISA tax-free growth for IHT reduction. It requires careful modelling of expected investment returns versus IHT rates — an independent financial adviser can run this comparison for your specific estate.
Annual gifting exemptions
Each tax year, you can gift up to £3,000 IHT-free (annual exemption), plus £250 per person to any number of recipients, plus amounts used for regular gifts from surplus income. These do not require surviving 7 years and can be funded from ISA withdrawals.
⚠️ Should you keep AIM shares in your ISA?
With AIM relief now at 50%, the strategy still provides some IHT benefit — but AIM shares carry significantly higher investment risk and price volatility than mainstream investments. The reduced relief changes the risk/reward calculation substantially. If you hold AIM shares in an ISA primarily for IHT purposes, the April 2026 change warrants an urgent review with a qualified financial planner.
Over-60s ISA FAQs
The most commonly searched questions about ISAs in retirement — with direct, HMRC-accurate answers for 2026.
I'm 62. Should I wait until I'm 65 to open a Cash ISA?
I'm 62. Should I wait until I'm 65 to open a Cash ISA?
No — use your full £20,000 allowance now, before 5 April 2027. The Cash Cap only restricts new contributions made from April 2027. Every pound you deposit before that date is grandfathered inside the tax-free wrapper permanently — regardless of your age at the time of deposit.
✅ What grandfathering means in practice:
You deposit £20,000 into a Cash ISA in March 2027. Even though you are 62 (under 65), that £20,000 sits in the ISA tax-free forever — the cap only affects new annual deposits from April 2027 onwards, not the existing pot.
When you turn 65, the £12,000/year cap is permanently lifted. So your effective restriction window is only the 1–3 years between April 2027 and your 65th birthday. In the meantime, use every year's £12,000 cash allowance, and redirect the remaining £8,000 to an income-focused Stocks & Shares ISA.
Can I have my ISA interest paid into my current account each month?
Can I have my ISA interest paid into my current account each month?
Yes — several ISA providers offer a monthly interest payment option. Paragon Bank (3.90% AER fixed 1-year) and Nationwide are notable examples where you can elect for interest to be paid directly to a nominated current account each month rather than compounded inside the ISA.
💡 Example monthly income:
£60,000 Cash ISA at 3.90% AER with monthly interest paid out = £195/month tax-free income paid directly to your bank account. Combined with State Pension, this can meaningfully supplement retirement income without any tax liability.
⚠️ Note on tax once interest leaves the ISA: Interest paid to your current account is no longer inside the tax wrapper. It counts toward your Personal Savings Allowance (£1,000 basic rate / £500 higher rate). Most retirees using this strategy remain within their PSA — but confirm with your tax position.
Does the 2027 Cash Cap affect money already in my ISA?
Does the 2027 Cash Cap affect money already in my ISA?
No. HMRC has explicitly confirmed that the £12,000 Cash ISA cap from April 2027 applies only to new annual contributions. All existing ISA balances — regardless of size — retain their full tax-free status indefinitely. The cap does not retrospectively affect a single penny of money already sheltered.
✅ Existing balances are completely safe:
A saver aged 60 with £250,000 in Cash ISAs accumulated over 20 years will see zero impact from the cap. The entire pot continues to earn tax-free interest. The cap only affects how much new money you can add each year from April 2027.
Is my ISA money safe if my bank goes bust?
Is my ISA money safe if my bank goes bust?
Yes — up to the applicable protection limit. UK Cash ISAs are covered by the Financial Services Compensation Scheme (FSCS), which protects up to £120,000 per banking licence. This is a per-authorisation limit, not per bank brand — so if two of your ISA providers share the same banking licence, the combined protection is still £120,000 across both accounts.
✅ For very large balances: NS&I
NS&I Direct ISA (3.55% AER, February 2026) is backed 100% by HM Treasury — not the FSCS — with protection on balances up to £2,000,000. For retirees with large ISA pots built up over decades, NS&I eliminates the per-licence protection concern entirely, albeit at a slightly lower rate.
💡 Checking parent licence: Use the FCA register (register.fca.org.uk) to confirm whether two providers share an authorisation. Common examples: Halifax and Bank of Scotland (both Lloyds Group). Deposits in both count toward a single £120,000 limit.
What's the best ISA strategy for a 65-year-old retiree?
What's the best ISA strategy for a 65-year-old retiree?
For a 65-year-old exempt from the 2027 Cash Cap, a three-layer ISA approach maximises income, liquidity and long-term protection:
Layer 1 — Emergency / Liquidity (Easy-Access Cash ISA)
3–6 months of living expenses in an instant-access Cash ISA. Trading 212 at 4.40% AER (Feb 2026). Accessible immediately without penalty.
Layer 2 — Regular Income (Monthly-Pay Cash ISA or Fixed)
Paragon at 3.90% AER (monthly interest paid to current account) or Castle Trust at 4.12% (fixed income for 12 months). This becomes the “tax-free paycheque” alongside State and private pension.
Layer 3 — Long-Term / Legacy (Income S&S ISA)
An income-focused Stocks & Shares ISA (Hargreaves Lansdown or Vanguard FTSE UK Equity Income) for a portion of the allowance invested for 5+ years. Shelters the 35.75% dividend tax and provides inflation-beating potential over time.
Are AIM ISAs still worth having after the April 2026 IHT change?
Are AIM ISAs still worth having after the April 2026 IHT change?
The case for AIM ISAs as an IHT strategy has weakened significantly since April 2026. With relief cut from 100% to 50%, AIM shares held in an ISA now face an effective 20% IHT rate rather than 0%. They are no longer “IHT-free” — they are “IHT-reduced.”
⚠️ What the numbers now look like:
AIM ISA worth £100,000: previously 0% IHT = £0 liability. From April 2026: 50% relief = effective 20% rate = £20,000 IHT liability. Plus AIM shares carry significantly higher volatility risk than mainstream investments.
✅ Better alternatives for IHT mitigation in 2026:
Gifting from surplus income (immediately IHT-exempt, no 7-year rule), annual £3,000 gifting exemption, and regular gifts to family funded from ISA interest or dividend income are now more attractive strategies relative to the reduced-relief AIM approach. Speak to a qualified financial planner before acting.
Find the Right ISA for Your Goals
Explore best rates and provider reviews across every ISA type in the TaxYZ hub.
FULL HUB
ISAs in the UK — Overview
Every ISA type explained in one place. Start here if you're new.
ALL RULES
ISA Allowances & Rules
Complete 2026/27 allowances, transfer rules, multi-ISA and 2027 Cap.
BEST RATES
Cash ISAs — Rates Compared
All easy-access, notice and fixed Cash ISAs ranked. Use before the 2027 cap.
DIVIDEND INCOME
Stocks & Shares ISAs
Shield dividend income from 35.75% tax. Best platforms for income investors.
RETIREMENT BONUS
Lifetime ISA (LISA)
£1,000 free government bonus each year. Tax-free access at 60 for retirement.
GRANDCHILDREN
Junior ISAs
£9,000/year for grandchildren. Grandparent contributions can qualify for IHT relief.
Your ISA Is Your Most Powerful Tax-Free Income Tool in Retirement
With the Personal Savings Allowance frozen, dividend tax at a record 35.75%, and the 2027 Cash Cap reshaping who can hold what, taking action before 5 April 2027 is the most important financial move over-60s can make this tax year.
📌 YOUR 2026 OVER-60s ISA CHECKLIST
Confirm your age status: if you turn 65 before 6 April 2027, you are permanently exempt from the Cash Cap — no action needed on that front.
If under 65: use the full £20,000 Cash ISA allowance before 5 April 2027 — this is your last unrestricted year.
If you hold AIM shares in an ISA for IHT purposes: the April 2026 rule change (100% → 50% relief) requires an immediate review of your strategy.
If your spouse has died: check whether you have an unclaimed Additional Permitted Subscription (APS) — and act within the 3-year deadline.
TaxYZ provides educational information only and is not regulated by the FCA. All ISA rates are verified as of February 2026 and are subject to change. Dividend yields are indicative and fluctuate with share prices. The April 2026 AIM IHT change and 2027 Cash ISA Cap details reflect current HMRC and Budget policy. TaxYZ does not provide regulated financial advice. Please consult a qualified financial adviser before making investment or estate planning decisions.