Chancellor Rachel Reeves is reportedly preparing to introduce a 22 per cent interest charge on stocks and shares ISAs. The Labour Party government is examining ways to reform ISAs, with the Chancellor previously confirming that the annual allowance would be capped from April 2027. For those under 65, the tax-free allowance will be reduced from £20,000 to £12,000.
Anti-Circumvention Rules
The new levy is part of the government's 'anti-circumvention rules', designed to prevent savers from exploiting loopholes. The tax rate aligns with the savings interest tax level, which is set to rise to 22 per cent next April. However, the Treasury has yet to confirm how this will operate.
Rachel Vahey, of investment platform AJ Bell, commented: '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. At the moment, we're looking at a very sharp implementation period and we really need some clarity from the Treasury as soon as we can get it.'
Impact on Savers
Rob Morgan, chief investment analyst at Charles Stanley Direct, said: 'From April 2027, the annual cash ISA allowance will be cut from £20,000 to £12,000 for those under 65, while the overall ISA allowance will remain at £20,000. Older savers will retain the full £20,000 cash allowance. Alongside this, the Chancellor is reportedly planning to introduce a 22% charge on interest earned on cash held within stocks and shares ISAs – effectively aligning with the basic rate of tax on savings from next tax year (2027/28).'
Morgan added: '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.'
Treasury Response
The Treasury previously stated: '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.'
Transfers from stocks and shares ISAs and innovative finance ISAs into cash ISAs are also expected to be banned as part of the reforms.
