Chancellor Rachel Reeves is expected to introduce a 22 per cent tax charge on interest generated from cash held within stocks and shares ISAs, but a 1p savings loophole could help savers circumvent the levy. The changes are due to come into force next April, with the Labour Party Chancellor targeting cash balances in investment accounts.
From April 6, 2027, savers under 65 will see their cash Isa allowance reduced to £12,000, although the overall £20,000 Isa limit will still be available through a stocks and shares Isa. Under the new anti-circumvention rules, investors will pay a 22 per cent charge on interest earned from cash balances held in stocks and shares ISAs from April 2027.
How the 1p Loophole Works
According to The Telegraph, savers can avoid the tax charge by maxing out their cash ISA limit of £12,000 and then placing the remaining £7,999 of their allowance into money market funds within a stocks and shares ISA, along with just 1p in the stock market. This strategy mimics cash savings while sidestepping the new tax.
Rachael Griffin, of wealth manager Quilter, expressed concerns about the complexity: I hope we don't end up in the pre-2014 scenario where we're having to monitor different investments. These things take time to deliver. I'm not sure whether HMRC has quite appreciated the potential level of work that's involved to implement these reforms by next April.
Treasury Response
A Treasury spokesman defended the reforms: We are reforming the cash Isa to encourage more people to invest in stocks and shares – which have historically performed better than cash savings – and we have retained the generous £20,000 tax-free limit. These changes will make people better off and will not require anyone to move existing savings from their cash Isa. The vast majority of savers will continue to pay no tax on their savings and the Treasury and HMRC are working at pace with industry on the detailed rules and will update on next steps in due course.
