UK savers face 22% charge on cash interest held in Stocks and Shares ISAs
Key Points
- A 22% charge will apply to interest earned on cash held within Stocks and Shares ISAs from 6 April 2027.
- The Cash ISA allowance for under-65s will be cut from £20,000 to £12,000, while the overall ISA limit stays at £20,000.
- Savers aged 65 and over keep a £20,000 Cash ISA allowance but remain subject to the 22% charge on cash interest.
- Transfers from Stocks and Shares ISAs into Cash ISAs will be banned, though transfers the other way remain permitted.
- Non-Cash ISA portfolios made up entirely of cash-like Money Market Funds will be treated as non-qualifying investments.
Savers will be hit with a new 22% charge on interest earned on cash held within Stocks and Shares ISAs from April 2027, under reforms confirmed by the Treasury.
The measure forms part of a wider overhaul of the ISA regime announced at the Autumn Budget 2025, which will see the Cash ISA allowance for those under 65 cut from £20,000 to £12,000 from 6 April 2027. The overall annual ISA limit will remain at £20,000.
The flat-rate charge will apply to any interest or alternative finance return paid on cash held within a non-Cash ISA.
The Treasury said the measure is designed to prevent savers from subscribing up to £20,000 in cash to a Stocks and Shares ISA and leaving it there long-term to earn tax-free interest, circumventing the lower Cash ISA limit.
Under the reforms, investors will still be able to hold cash within a Stocks and Shares ISA, but any interest paid on those holdings will be subject to the 22% charge.
The government will also classify non-Cash ISA portfolios made up entirely of cash-like assets as non-qualifying investments.
Cash-like assets, defined as Money Market Funds, will be permitted only as partial allocations and must not make up 100% of an individual’s non-Cash ISA. ISA managers will be required to report the market value of such holdings via the end-of-year statistical return.
Common investments held in Stocks and Shares ISAs, including individual shares, funds, investment trusts, exchange-traded funds and corporate and government bonds such as UK gilts, will not be treated as cash-like assets under the measure.
Transfers from non-Cash ISAs into Cash ISAs will also be banned, though transfers in the opposite direction, from a Cash ISA into a Stocks and Shares ISA, will remain permitted.
Savers aged 65 and over will be exempt from the headline cut, retaining a £20,000 Cash ISA allowance from the start of the tax year in which they turn 65.
The transfer restriction will also be lifted at that point. However, the 22% charge on cash interest and the prohibition on wholly cash-like portfolios will continue to apply to over-65s.
The Treasury said the rules are intended to encourage retail investment and support better returns for savers, while minimising opportunities for the lower Cash ISA limit to be circumvented.
Rachael Griffin, Tax and Financial Planning Expert at Quilter, said the proposals showed how the government intends to reshape the ISA market but warned that significant gaps remained over implementation.
She added that the ambition to encourage more people to invest was right, but cautioned that the new charge, money market fund rules and transfer restrictions risked making the product feel more complicated at the point policymakers want cautious savers to begin investing.
Griffin said applying a flat-rate charge to interest within the product would mean investors receive a reduced net return regardless of their personal tax position, effectively introducing a consistent reduction across cash holdings rather than targeting specific behaviour.
She welcomed the government’s decision to focus on portfolios invested entirely in money market funds rather than imposing a broader restriction, describing it as a more proportionate approach.
A technical consultation with industry on the draft legislation will begin shortly. Regulations will be laid in the autumn, with the new rules coming into force from 6 April 2027.
