Stocks & Shares ISAs to face 22% tax next year

Rachel Reeves is expected to bring in a 22 per cent tax charge on interest generated from cash held within stocks and shares ISAs , with the changes due to come into force next April.

From April 6, 2027, savers under 65 will see their cash Isa allowance reduced to £12,000, although the overall £20,000 Isa limit will still be available through a stocks and shares Isa.

The Chancellor first signaled the policy in last year’s Budget, presenting it as a measure designed to encourage greater investment in the UK and to prevent savers from using their stocks and shares ISA as surrogate cash ISA after the cash ISA allowance reduction. However, until now, few details had emerged about how the revised system would work in practice.

Now, as part of the new “anti-circumvention rules”, investors will pay a 22 per cent charge on interest earned from cash balances held in stocks and shares ISAs from April 2027.

The proposal echoes the Isa rules that existed before 2014, when cash interest inside stocks and shares ISAs attracted a 20 per cent charge. Under the updated regime, the levy would match the savings interest tax rate, which is set to rise to 22 per cent in April 2027.

HM Revenue & Customs (HMRC) had already indicated that interest on cash held in stocks and shares ISAs would become subject to a charge from that date, although it had not previously specified the rate that would apply.  

What is an ISA? 

An ISA, or ‘Individual Savings Account’, is a scheme that allows anybody to hold cash, shares and unit trusts free of tax on dividends, interest, and capital gains. Essentially, it’s a savings account that you don’t pay tax on.   

A Stocks and Shares ISA is a tax-efficient investment account that allows you to put your money into a range of funds in various asset classes, with the goal of hopefully achieving better long-term returns than you might from a traditional savings account.  

Unlike a Cash ISA, which simply protects your interest from tax, a Stocks and Shares ISA puts your money to work in the financial markets. This means you can invest in things like funds, shares and bonds, while still benefiting from the ISA’s tax-free account status (or ‘wrapper’).  

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. However, it’s important to note that from April 2027, the annual allowance for the cash ISA specifically will be reduced to £12,00 for those under 65.

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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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate cash or tax advice. 

Investment returns are not guaranteed, and you may get back less than you originally invested. Past performance is not a guide to future returns.