Chancellor Rachel Reeves has confirmed a new 22% tax on interest earned from stocks and shares ISAs, set to take effect from April 2027. The charge is part of wider reforms to cash ISA accounts, which will also see the tax-free ISA limit for under-65s reduced from £20,000 to £12,000 from next year.
The move comes weeks before Ms Reeves follows Keir Starmer out of Downing Street, with incoming Prime Minister Andy Burnham expected to appoint a new Chancellor. Pensioners are protected from these changes and will retain the existing £20,000 limit.
Details of the New Tax
Under the new rules, savers will still be able to put up to £8,000 in stocks and shares ISAs, but a 22% charge will apply to interest earned on cash held in these accounts. The government says this is to prevent a "workaround" where savers use non-cash ISAs as cash ISAs after the cash ISA limit is reduced.
Money Saving Expert explained: "From April 2027, you will be taxed on interest earned on cash held in a non-cash ISA, such as a stocks and shares ISA or innovative finance ISA. The Government says this is to prevent people from using non-cash ISAs like cash ISAs once the cash ISA limit is reduced."
Impact on Savers
The reforms have sparked criticism from investment platforms. Wander Rutgers, UK CEO of investment platform Lightyear, said: "The Government is selling these ISA reforms as a way to get more people investing, but they’ll do the opposite. The single biggest reason people don't invest is that it feels complicated, and these rules pile on more complexity, not less. Instead of one simple tax wrapper, we now have a 22% tax on cash interest inside a stocks and shares ISA, a ban on transferring from a stocks and shares ISA back into a cash ISA, age limits, and restrictions on money market funds."
A petition backed by 16,000 names has triggered a response from HM Treasury, but the government has pressed ahead with the changes. The new ISA rules for under-65s are due to take effect from April 2027.
