Treasury minister Rachel Blake has spoken about plans for a potential 22 percent tax rate on certain ISA holdings, amid what MPs have described as 'serious confusion' over upcoming changes to the tax-free savings system.
ISA Allowance Changes
Under current rules, savers can deposit up to £20,000 each tax year into ISAs, splitting the allowance between cash ISAs and stocks and shares ISAs as they wish. However, from April 2027, only £12,000 of the allowance can be used freely, while the remaining £8,000 will be restricted to investments only, no longer available for cash savings. Savers aged 65 and above are exempt from these changes and will retain the current allowance.
New Checks and Possible Charges
HMRC has previously outlined rules to prevent circumvention of the lower cash ISA limit, including bans on transfers from stocks and shares and Innovative Finance ISAs to cash ISAs, tests to determine if an investment is 'cash-like', and a charge on interest paid on cash held in stocks and shares or Innovative Finance ISAs. However, precise details have not yet been released.
At a recent Treasury Committee hearing, chair Meg Hillier pressed ministers for clarity, stating: 'There is now some serious confusion arising about what happens to the dividends from a stocks and shares ISA and, particularly, how you define the money held in cash-like investment ISAs. What is happening? It is very confusing.'
Economic Secretary to the Treasury Rachel Blake responded: 'I recognise the problem. We will be coming to you soon with the next steps on this. I appreciate that is not what you want to hear and perhaps may not be sufficient.'
Ms Hillier was unsatisfied, questioning whether the Government had foreseen the confusion before introducing the change. Ms Blake assured that the issue had been anticipated and further details were 'imminent'.
Cash-Like Investments
Dan Rusbridge, deputy director of the personal finances and funds team at HM Treasury, explained that the ISA allowance changes are part of a 'package of measures' to encourage UK savers to invest. Regarding cash-like investments, such as money market funds, he said: 'Trying to square that circle has been a tricky policy challenge. We have been engaging in a very full way with the broadest range of stakeholders to try to find a way through that. We will be coming out with details on that very soon.'
When asked if 'very soon' meant before summer or autumn, Rusbridge replied: 'Certainly before that. It will be very soon.'
22% Tax Rate Rumours
Ms Hillier also raised concerns about reports suggesting a 22 percent tax rate could be applied to cash-like deposits in a stocks and shares ISA, describing it as 'very confusing' for savers. She asked: 'Minister, are the rumours that that could be happening right? It has been reported widely.'
Ms Blake said she believed discussion of such a tax charge was 'just rumours'. The committee chair urged her to confirm that the Government has 'no plans to tax interest or dividends'. Ms Blake responded: 'That is the first time I have heard that rumour.'
Mr Rusbridge added: 'The Government will be coming forward with precise details to clarify exactly this very soon, because it is a really important question. The coming announcement will describe in full detail exactly all the rules around anti-circumvention or however you want to describe it, so that ISA managers have all the detail they need to make sure they can be ready for when these changes come online in April next year.'
