New ISA rules set to take effect from April 2027 will introduce a 22% tax on interest earned on cash held within stocks and shares ISAs, closing a loophole as the government pushes Britons to invest rather than hold cash. However, personal finance expert Kevin Mountford warns that the growing number of rule changes could leave savers confused and potentially worse off.
What the New Rule Means for Savers
Kevin Mountford, co-founder of Raisin UK, said: "Any change to ISA rules risks creating confusion for savers, particularly when many people are already trying to make their money work harder in a higher-tax environment." He stressed that cash ISAs themselves are not affected: "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."
The 22% tax targets cash held within other types of ISAs, such as stocks and shares ISAs. According to Mountford, "That could be uninvested money held within an investment account, rather than money held in a dedicated cash ISA."
Who Is Most at Risk?
Someone using a cash ISA for their savings should not panic, but anyone holding large cash balances inside a stocks and shares ISA may need to check how their provider treats that money from April 2027. Mountford warned: "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."
Steps to Take Before April
Mountford urged savers to verify what type of ISA they possess and where their money is actually being kept. If you discover you have cash in a stocks and shares ISA, he recommended contacting your ISA provider to understand how the rule changes might impact you. He said: "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."
Broader Tax Context
The expert noted: "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." He added: "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."
