Chancellor Rachel Reeves has confirmed a new 22% charge on interest earned from cash held in stocks and shares ISAs, part of major changes to cash ISA rules that will come into force from April 2027.
New Tax-Free Limit and Charges
The tax-free ISA limit for under-65s will be cut from £20,000 to £12,000 from next year, a significant blow to savers. Pensioners are protected and will retain the existing £20,000 limit. Working-age people will be able to put £12,000 into a cash ISA and the remaining £8,000 into a stocks and shares ISA, but those with stocks and shares accounts will face the new 22% tax on interest earned from cash held within them.
The Chancellor believes that encouraging greater investment in stocks and shares will boost the economy. However, the changes have drawn criticism from financial experts.
Expert Reaction
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."
Martin Lewis' Money Saving Expert added that the 22% charge is designed to stop "workarounds" of the new rules. They said: "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 changes mean that savers who hold cash within a stocks and shares ISA will face a 22% tax on any interest earned, effectively reducing the tax advantage of these accounts. The reduction in the overall tax-free limit from £20,000 to £12,000 for under-65s also limits the amount that can be saved tax-free in cash ISAs. The Government has not announced any transitional arrangements, so savers will need to adjust their strategies before April 2027.
