Chancellor Rachel Reeves is set to introduce a new charge on interest earned from cash held in stocks and shares ISAs, according to reports. The move is part of a major reform of Individual Savings Accounts (ISAs) scheduled for April 2027.
Key Changes to ISA Allowances
The annual cash ISA limit for individuals under 65 will be reduced from £20,000 to £12,000. However, the overall ISA allowance for under-65s will remain at £20,000. This means savers can allocate up to £12,000 into a cash ISA and the remaining £8,000 into a stocks and shares ISA, or invest the full £20,000 into stocks and shares. The government aims to encourage more investment to stimulate economic growth. Over-65s will retain the ability to save up to £20,000 into a cash ISA.
New 22% Charge on Cash Held in Stocks and Shares ISAs
A report by The Telegraph suggests that from April 2027, savers will face a 22% charge on interest earned from cash held within stocks and shares ISAs. Previously, HM Revenue and Customs (HMRC) had indicated that cash held in such accounts would be subject to a charge but had not specified the rate. Rachel Vahey of investment platform AJ Bell commented, “This really does need resolving if the Treasury wants to keep to the timeline of April 2027. It leaves us with very little time to make changes.”
Government Response
A Treasury spokesperson told the Mirror: “We are reforming the cash ISA to encourage more people to invest in stocks and shares – which have historically performed better than cash savings – and we have retained the generous £20,000 tax-free limit. These changes will make people better off and will not require anyone to move existing savings from their Cash ISA. The vast majority of savers will continue to pay no tax on their savings and HMT and HMRC are working at pace with industry on the detailed rules and will update on next steps in due course.”
Tax Rate Increases on Savings Interest
In addition to the ISA reforms, the tax rates on savings interest earned outside ISAs will rise from April 2027. For basic-rate taxpayers, the 20% tax rate on interest exceeding £1,000 per year will increase to 22%. Higher-rate taxpayers currently pay 40% on interest above £500 annually, which will rise to 42%. Additional-rate taxpayers will see their rate increase from 45% to 47% on all savings interest. These changes apply to savings interest earned above the respective thresholds.
ISAs remain a tax-efficient savings vehicle, with main types including cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs. Junior ISAs are available for children. Some ISAs have lower annual limits; for instance, the Lifetime ISA cap is £4,000 per tax year.
