Major changes to cash ISA rules will introduce a new 22% charge on some savers, affecting households with over £10,000 in savings who are forced to move their money, as well as others depositing into particular accounts. The tax-free ISA limit is being cut from £20,000 to £12,000 for under-65s from April next year, a significant blow to savers.
New 22% charge on cash in stocks and shares ISAs
Under the new rules, working-age households will be able to put £12,000 into a cash ISA and the other £8,000 into a stocks and shares ISA. However, any interest earned from these stocks and shares accounts will be subject to a 22% tax. This charge is designed to prevent people from using investment ISAs as a workaround to hold cash when the cash ISA limit is reduced.
Money Saving Expert explained: "Savers who hold cash inside stocks and shares ISAs will be charged 22% on any interest earned on that cash from 6 April 2027, the Government has confirmed. The charge is designed to stop people using investment ISAs as a workaround to hold cash when the cash ISA limit is cut from £20,000 to £12,000 a year for under-65s from the same date."
Impact on savers and pensioner protections
These changes will likely result in households reassessing where they keep their savings. Savers may want to think carefully about where to leave their money to give it the best chance of growing. Pensioners are being protected from the cash ISA shake-up and will still be able to make use of the £20,000 limit.
The measures were drawn up by former Chancellor Rachel Reeves and are being inherited by Andy Burnham and new Chancellor John Healey. The 22% charge aims to stop people getting around loopholes, according to Money Saving Expert.
Encouraging investment in stocks and shares
Households are instead being encouraged to invest in stocks and shares ISAs. With the cash ISA limit reduced, savers will need to decide whether to accept the lower tax-free cash allowance or venture into investment accounts, where interest is now taxed at 22%.
These changes take effect from April 2027, giving savers time to plan their finances accordingly.
