New ISA rules set to take effect from April 2027 will impose a 22 per cent tax on interest earned on cash held in non-cash ISAs, such as stocks and shares ISAs. The change is designed to close a loophole and encourage more Britons to invest rather than hold cash. However, personal finance expert Kevin Mountford, co-founder of Raisin UK, warns that the mounting number of rule changes could leave savers confused and potentially worse off.
What the Rule Change Means for Savers
Mountford emphasised that cash ISAs themselves are not being taxed. He said: "The key point for consumers is that this does not mean cash ISAs are suddenly being taxed. A cash ISA is still designed to let people earn savings interest tax-free, within the usual ISA allowance." Instead, the new tax targets cash held within other ISA types, such as uninvested money sitting in a stocks and shares ISA. From April 2027, any interest earned on that cash will be subject to a 22 per cent tax.
Potential Confusion and Risk
Mountford warned that the growing complexity of ISA rules could lead savers to miss out on tax-free opportunities. He said: "If people do not understand what type of ISA they have, where their cash is held, or how interest is treated, they could miss out on tax-free savings opportunities." He urged savers to check their ISA type and where their cash is stored, particularly if they hold large cash balances inside a stocks and shares ISA.
Expert Advice: Check Your ISA Type
Mountford advised: "For savers, the priority should be to check what type of ISA they have and where any cash is sitting. If you are holding cash inside a stocks and shares ISA, particularly for a long period rather than as a short-term step before investing, it may be worth speaking to your provider about how the upcoming rule changes could affect you." He also noted that with the personal savings allowance unchanged and savings tax rates due to rise from April 2027, more people could find themselves paying tax on interest held outside an ISA.
Don't Rush into Investing
Mountford cautioned against making hasty decisions: "Consumers should not feel rushed into investing because of rule changes, but they should take this as a reminder to review their savings, compare rates and make sure they are using tax-free allowances where possible." The expert stressed that understanding the rules is key to maximising savings potential in a higher-tax environment.
