Treasury confirms 22% charge on cash interest in stocks and shares ISAs
The UK Treasury has confirmed a significant change to how Individual Savings Accounts (ISAs) will operate from April 2027 - introducing a 22% charge on interest earned from cash held inside stocks and shares ISAs.
Under the proposed rules, any uninvested cash held within a stocks and shares ISA (or other non-cash ISA) will no longer benefit from full tax-free status on interest earned. Instead:
A flat 22% charge will apply to interest (and equivalent alternative finance returns) on cash held within these accounts.
The measure is expected to take effect from 6 April 2027, subject to consultation and final legislation.
This charge applies only to cash interest, not to investments themselves.
Shares, funds, ETFs and bonds remain fully tax-free within the ISA wrapper.
In practical terms, if an investor sells holdings and temporarily holds the proceeds as cash within their ISA, any interest generated on that cash will now be subject to this charge.
This forms part of a broader set of reforms aimed at reshaping how ISAs are used:
The cash ISA allowance is set to fall from £20,000 to £12,000 per year for savers under 65 from April 2027.
The overall annual ISA limit remains at £20,000
Transfers from stocks and shares ISAs into cash ISAs will be prohibited, while transfers in the opposite direction will still be allowed.
Portfolios made up entirely of cash-like assets may be deemed non-qualifying investments.
This change is primarily designed to close a loophole where savers could avoid the reduction in the Cash ISA allowance by placing up to £20,000 into a stocks and shares ISA and leaving it sitting in cash, there it would continue to earn tax-free interest, effectively bypassing the reduced Cash ISA cap.
This change also forms part of a wider policy objective to encourage UK savers to invest rather than hold cash, and maintain fairness across the ISA system - because without reform Cash ISAs would become less attractive due to the lower allowance.
For most long-term investors, the core tax benefits of ISAs remain unchanged:
No tax on capital gains
No tax on dividends
Continued flexibility to invest across a wide range of assets
However, the change may affect:
Investors who hold large cash balances within their portfolios
Those who phase investments (drip-feeding into markets)
Clients who temporarily hold cash following a sale or before reinvestment
In these situations, holding cash within a stocks and shares ISA will become less tax-efficient than it is today.
While the intention is to improve long-term outcomes and prevent misuse of the ISA system, the practical impact will depend heavily on how individuals use their accounts, and whether the platforms decide to lower or eliminate interest payments for cash held in a stocks and shares ISA in the name of limiting the charges faced by consumers
For many, now is a good time to review how cash is held within investment portfolios and ensure that ISA strategies remain efficient under the new rules expected from 2027.
This article isn’t personal advice. If you’re not sure whether a course of action is right for you, ask for financial advice. Your home may be repossessed if you do not keep up repayments on your mortgage.
