HMRC Announces New Levy on Cash Held in Stocks and Shares ISAs
HM Revenue and Customs (HMRC) has confirmed that from April 6, 2027, a 22% flat-rate charge will be applied to interest earned on cash held within stocks and shares ISAs. The measure aims to prevent savers from using these accounts as a backdoor cash savings vehicle after the annual cash ISA allowance is reduced to £12,000.
The change, first announced in the Autumn Budget of November 2025, reduces the cash ISA subscription limit from £20,000 to £12,000 from April 2027. The allowance for stocks and shares and innovative finance ISAs (non-cash ISAs) remains at £20,000, as part of government efforts to encourage an investment culture. Savers aged 65 and over will retain the full £20,000 cash ISA allowance.
Rules to Prevent Avoidance
A government factsheet published on GOV.UK outlines 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 who use non-cash ISA subscriptions to purchase wholly cash-like investments.
HMRC stated that the 22% charge will apply to interest or alternative finance return paid on cash held in non-cash ISAs. A technical consultation with industry on the draft legislation is expected to begin shortly, with regulations to be laid in autumn 2026.
Industry Reaction
Simon Harrington, head of public affairs at PIMFA (Personal Investment Management and Financial Advice Association), expressed scepticism: "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, group director of retail products at Nationwide Building Society, welcomed the controls: "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), emphasised the need for clarity: "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."
Mixed Views from Industry Leaders
Jasvinder Gakhal, chief executive for money at Skipton Building Society, called the consultation "a step in the right direction" but added "the detail now matters." Jeremy Cox, head of strategy at Coventry Building Society, criticised the complexity: "We’re moving away from a fair and straightforward Isa system, where all adults can save or invest up to £20,000 tax-free each year, towards a more complex and confusing set of rules that will feel unfair to many consumers."
Andrew Prosser, head of investments at InvestEngine, warned of potential disengagement: "Our worry is that instead of encouraging investing, this could end up putting people off. If stocks and shares Isas become more complex and less straightforward, some savers may just disengage altogether – which would go against the whole point of trying to build a stronger investing culture in the first place. What we really need is to improve financial education and make it more accessible – that would do far more to encourage people to invest than simply restricting how they use their savings."
