HM Revenue and Customs (HMRC) has announced a 22% levy on interest earned from cash held within stocks and shares Individual Savings Accounts (Isas) to prevent savers from circumventing new cash Isa limits set to take effect in April 2027. The measure was detailed in a factsheet published on the HMRC website following the autumn budget 2025.
New Cash Isa Allowance and Levy Details
From April 2027, the annual cash Isa allowance will be reduced to £12,000, while the limit for stocks and shares and innovative finance Isas (non-cash Isas) will remain at £20,000. The government aims to encourage an investment culture through this policy. However, individuals aged 65 and over will retain a £20,000 cash Isa allowance.
To ensure the policy achieves its objective, HMRC will introduce rules to prevent savers from subscribing up to £20,000 in cash within a non-cash Isa and leaving it there long-term to earn tax-free interest. The rules also target those who transfer funds from a non-cash Isa to a cash Isa or subscribe £20,000 to a non-cash Isa and invest in wholly cash-like investments.
Flat Rate Charge on Cash Interest
As part of these changes, a flat rate charge of 22% will be applied to interest or alternative finance return paid on cash held within a non-cash Isa. HMRC stated that this levy is designed to ensure the reduced cash Isa allowance is not undermined by savers using stocks and shares Isas as a de facto cash Isa.
Simon Harrington, head of public affairs at PIMFA (Personal Investment Management and Financial Advice Association), expressed scepticism about the effectiveness of the changes. "We remain sceptical that these changes will have any real effect on consumer investment behaviour and fear they will do the opposite," he said. "Far from encouraging take up, they risk making the stocks and shares Isa, the very wrapper the Government wants people to use, less attractive."
Implementation Timeline
HMRC confirmed that a technical consultation with industry on the draft legislation will commence shortly, with regulations to be laid in the autumn. The new rules are scheduled to come into force from April 6, 2027.
