Some savers could soon be hit by huge tax charges under new rules reportedly being considered by Chancellor Rachel Reeves. The changes involve cash ISA rules set to take effect from 2027.
The annual tax-free limit for cash ISAs will be reduced from the current £20,000 to £12,000 for savers under the age of 65. However, the overall ISA allowance will remain at £20,000, but it will be split: up to £12,000 can be saved in a cash ISA, and the remaining £8,000 can be placed in a stocks and shares ISA.
Why the change?
The government aims to encourage more people to invest in stocks and shares, which historically have performed better than cash savings, thereby boosting the economy. According to the Mirror, the Telegraph reports that savers could face a 22% charge on interest earned from cash held in stocks and shares ISAs from April 2027.
HMRC had previously confirmed that savers with cash in stocks and shares accounts would face a charge, but had not specified the rate. This means savers could be stung by the taxman as a result of the ISA rule changes.
Industry reaction
Rachel Vahey, of investment platform AJ Bell, told the newspaper: “This really does need resolving if the Treasury wants to keep to the timeline of April 2027. It leaves us with very little time to make changes.”
A Treasury spokesman told the Mirror: “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 HMT and HMRC are working at pace with industry on the detailed rules and will update on next steps in due course.”
