HMRC preparing to tax cash held in stocks and shares ISAs

HM Revenue & Customs (HMRC) is preparing to introduce a charge on cash held within stocks and shares ISAs in an effort to stop individuals from sidestepping the upcoming cut to the cash ISA allowance.

According to HMRC, a charge will apply to any interest earned on cash kept in a stocks and shares or innovative finance ISA.

It also intends to block transfers from stocks and shares ISAs and innovative finance ISAs into cash ISAs in a further attempt to prevent savers getting around the cash ISA allowance cut.  

Earlier this week, the UK government confirmed in its autumn Budget that from April 2027, the annual cash ISA allowance for those under 65 will be reduced to £12,000.

Those aged 65 and over will continue to benefit from the original £20,000 annual cash ISA allowance.  

Specifically, HMRC stated the following in their newsletter last week:

“The following rules will be introduced to avoid circumvention of the lower limit for cash ISAs: no transfers from stocks and shares and Innovative Finance ISAs to cash ISAs tests to determine whether an investment is eligible to be held in a stocks and shares ISA or is ‘cash like’ a charge on any interest paid on cash held in a stocks and shares or Innovative Finance ISA”

It should be noted that these rules, like the new cash ISA limit, only apply to persons under the age of 65.

It is also important to bear in mind that the proposed rules around cash held in stocks and shares ISAs are not yet set in stone, with HMRC adding:  

“Industry will be consulted on the draft legislation, which will be made by amendments to the ISA regulations, and laid before Parliament well ahead of April 2027.” 

What is an ISA?

An ISA, or ‘Individual Savings Account’, is a scheme that allow and capital gains. Essentially, it’s a savings account that you don’t pay tax on.  

A cash ISA is a tax-free savings account that allows people to save cash without incurring income tax on interest. They have become more popular over the past two years due to rising interest rates increasing the competitiveness of savings products. 

You can save up to £20,000 each tax year across ISAs and receive tax-free interest payments, so when the value of your cash ISA increases, you get to keep all of it tax-free.

While there is a £20,000 allowance in place for how much you can put in a year, there is not a cap on how much you can accumulate in an ISA over a lifetime.  

 When choosing a style of investment to suit your needs, you may want to consider how long you plan to invest for and how much you would like your money to grow. It is also important to understand what movement in value you may or may not be happy with and any potential losses that may happen. That is why soliciting professional advice can be crucial for understanding how to take those first steps towards a secure financial future.

If you want to find out more, why not give us a call on 0333 323 9065 or book a free non-committal initial consultation with one of our chartered advisers to see how we can help. 

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The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice.