Chancellor Rachel Reeves is reportedly planning to introduce a 22% charge on interest earned from cash held within stocks and shares ISAs, as part of major changes to cash ISA rules. The move is designed to encourage savers to invest in stocks and shares rather than holding cash.
Key Changes to ISA Rules
From April 2027, the annual cash ISA allowance will be cut from £20,000 to £12,000 for savers under 65. The overall ISA allowance will remain at £20,000, meaning under-65s can put £12,000 into a cash ISA and £8,000 into a stocks and shares ISA. Pensioners will be protected and can still use the full £20,000 cash ISA limit.
Proposed 22% Charge
According to reports, the Chancellor is considering a 22% charge on interest earned on cash within stocks and shares ISAs, aligning with the basic rate of tax on savings from the 2027/28 tax year. This has drawn criticism from experts who say it could complicate the ISA system.
Rob Morgan, chief investment analyst at Charles Stanley Direct, said: "The reforms aim to nudge savers towards investing rather than holding cash – a laudable aim. However, the suite of 'anti-circumvention' measures risks reversing much of the simplification of ISAs achieved in 2014, replacing it with a more restrictive and complex landscape."
He added: "The proposed 22% charge in some ways marks a return to the pre-2014 framework, when interest on cash held within stocks and shares ISAs faced a levy of 20%. That system was swept away by George Osborne's ISA reforms in July 2014, which introduced a single, more flexible ISA allowance and made all cash returns fully tax free."
Government Response
A Treasury spokesman said: "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."
