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The Treasury has confirmed that, from April 2027, interest earned on cash held within a Stocks and Shares ISA will be subject to a flat 22% charge.
The move forms part of a wider package of ISA reforms designed to encourage savers to invest more of their money in long-term investments rather than holding cash within investment accounts. The rules will be subject to a short technical consultation before legislation is finalised.
Alongside the new tax charge, the government confirmed that money market funds will be treated as cash if they make up 100% of a Stocks and Shares ISA portfolio.
This means investors will not be able to avoid the new rules simply by switching cash into cash-like investments. Mixed portfolios containing money market funds alongside other investments will continue to qualify as Stocks and Shares ISAs.
The reforms also include a significant reduction in the annual Cash ISA allowance to £12,000, while transfers from Stocks and Shares ISAs back into Cash ISAs will no longer be permitted. Investors will, however, still be able to transfer from Cash ISAs into Stocks and Shares ISAs or other ISA types, reinforcing the government’s aim of encouraging greater participation in investment markets.
The announcement has prompted concern across the savings industry. Several providers warned that taxing cash held within Stocks and Shares ISAs could reduce the attractiveness of the wrapper and may even encourage platforms to lower or remove interest paid on cash balances to minimise the impact on investors. Others argued that restrictions are being introduced before there is sufficient evidence on how savers will respond to the wider ISA reforms.
Industry commentators have also questioned whether the changes could produce unintended consequences. While the government’s objective is to encourage long-term investing, some believe reducing flexibility and increasing taxation on cash could discourage saving altogether or make investors less willing to move money into investment markets during periods of uncertainty.
For investors, the changes reinforce the importance of reviewing how ISA portfolios are structured. Holding excessive cash within a Stocks and Shares ISA may become less tax-efficient from 2027, making regular portfolio reviews and an appropriate long-term investment strategy increasingly valuable. Investors should consider seeking professional advice to ensure their ISA arrangements continue to support their wider financial and tax planning objectives.
This is issued by IPS Capital LLP of 4 Eastcheap, London EC3M 1AE; a limited Liability Partnership registered in England OC328405 and authorised and regulated by the Financial Conduct Authority. It is issued in the UK only. This publication does not constitute advice and you should not make any investment decision based on it. The information contained herein is correct to the best of our knowledge and we may not be held liable for any errors or omissions. This information is based on current information in respect of UK Pensions. IPS Capital LLP does not offer tax advice and you should seek professional tax advice for your own circumstances.
