Chancellor Rachel Reeves is reportedly planning to introduce a 22% tax on the interest earned from uninvested cash held in a stocks and shares ISA from April 2027. The Labour Party has already confirmed that the ISA limit will be cut from £20,000 to £12,000 for under-65s from next year, in a blow to savers. People will instead be encouraged to invest in stocks and shares ISAs.
Experts Warn of 'Punishment'
However, if the interest tax goes ahead, experts have warned it will be 'a punishment aimed at diligent savers'. Speaking to Newspage, Antonia Medlicott, Founder & MD at London-based Investing Insiders, said: 'I find these proposals deeply frustrating as taxing uninvested cash held in a stocks and shares ISA feels like a punishment aimed at diligent savers who genuinely want to invest their money.'
'Every serious investor holds cash inside their stocks and shares ISA at some point. Whether it's deciding what to buy next, waiting for a market dip, or rebalancing your portfolio, these are legitimate reasons to hold cash inside an ISA, and not people looking to use a tax loophole.'
'This will heavily impact cautious investors who use money market funds, who will feel disincentivised against investing. There is a consistent pattern in recent ISA policy of designing rules around an imagined bad actor and then hitting ordinary people in the process.'
'The final rules must be softer than the proposals currently suggest, or else this could result in cash being moved outside of an ISA. Ordinary people should be allowed to grow their money without the state taking a cut at every turn.'
Further Criticism from Financial Advisors
Scott Gallacher, Director at Leicester-based Rowley Turton, added: 'ISAs are one of the great policy successes of successive governments, regardless of political colour. They are simple, trusted and widely understood.'
'These changes risk chipping away at that confidence. Worse still, this policy risks deterring the very people the government says it wants to encourage: cautious savers who are on the fence about investing and may need a nudge.'
'Cash ISA savers are unaffected by this particular charge, but someone who invests through a stocks and shares ISA and later needs to de-risk — perhaps because they lose their job, face a tax bill, or simply need greater certainty — could find their ISA cash subject to a charge, with no option of transferring it into a cash ISA. That is not pro-investment, it is anti-flexibility.'
'If a stocks and shares ISA becomes a one-way door, some cautious savers may simply avoid investing altogether.'
