HM Revenue and Customs (HMRC) has announced a 22% levy on interest earned from cash held within stocks and shares Isas, aimed at preventing savers from circumventing new cash Isa allowance rules set to take effect from April 2027.
Background to the Policy Change
At the autumn budget 2025, the government revealed that from April 2027, the annual cash Isa allowance would be reduced to £20,000 for those aged 65 and over, and to £12,000 for all other savers. The limit for stocks and shares and innovative finance Isas (non-cash Isas) will remain at £20,000, as part of broader efforts to encourage an investment culture.
Details of the Levy and Rules
A factsheet published on the HMRC website outlines several measures to ensure the policy achieves its objectives. These include preventing individuals 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 aim to stop savers from transferring funds from a non-cash Isa to a cash Isa, or using a non-cash Isa to purchase wholly cash-like investments. To enforce these changes, a flat-rate charge of 22% will be applied to interest or alternative finance returns paid on cash held within a non-cash Isa.
Industry Reactions
Simon Harrington, head of public affairs at the Personal Investment Management and Financial Advice Association (PIMFA), expressed scepticism about the effectiveness of the changes. He said: "We remain sceptical that these changes will have any real effect on consumer investment behaviour and fear they will do the opposite. Far from encouraging take up, they risk making the stocks and shares Isa, the very wrapper the Government wants people to use, less attractive."
Tom Riley, Nationwide Building Society’s group director of retail products, offered a more positive view: "Ensuring a level playing field between cash and non-cash Isas is vital to maintaining a strong savings market. We welcome the Government’s introduction of controls to support its ambition to get more people investing, while ensuring over-65s can rely on the full cash Isa allowance."
Andrew Gall, head of savings at the Building Societies Association (BSA), also welcomed the clarity: "We welcome the Government providing greater clarity on its proposed Isa reforms. It is vital that savers have clear information and sufficient time to understand how the changes will affect them and the choices available to them from April 2027. Building societies also need certainty on the final rules so they can update systems and communicate with their members well ahead of implementation."
Implementation Timeline
HMRC stated that a technical consultation with industry on the draft legislation will begin shortly, with regulations to be laid in the autumn. The new rules are scheduled to come into force from April 6, 2027.
