HMRC to Charge 22% on Cash Held in Stocks ISAs
HMRC has confirmed a 22% flat-rate charge on interest earned from cash sitting inside stocks and shares ISAs, coming into force on 6 April 2027.
The measure closes a gap that would have allowed savers to use investment wrappers as de facto cash accounts once the new reduced cash ISA limit takes effect.
What Is Actually Changing and Why
At the Autumn Budget 2025, Chancellor Rachel Reeves announced that the annual cash ISA allowance for people under 65 would be cut from £20,000 to £12,000 from April 2027.
The limit for stocks and shares ISAs and innovative finance ISAs — collectively referred to as non-cash ISAs — remains at £20,000.
That gap immediately created a route for savers to sidestep the lower cash limit: subscribe the full £20,000 into a stocks and shares ISA, leave the money uninvested in cash, and earn tax-free interest without ever buying a share.
According to HMRC's official factsheet, published on 23 June 2026, the new rules are designed to prevent exactly that. A flat charge of 22% will apply to any interest or alternative finance return paid on cash held within a non-cash ISA.
That rate is not arbitrary. It broadly mirrors the basic rate of income tax, replicating the treatment cash savings would face outside an ISA wrapper.
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What the Charge Actually Targets — and What It Doesn't
The critical distinction most coverage has not made clearly: the 22% charge applies only to uninvested cash.
Shares, investment funds, ETFs, and other qualifying assets held inside a stocks and shares ISA retain their existing tax treatment in full. Gains and dividends on investments are not touched by this measure.
The target is idle cash — money sitting in a stocks and shares account earning interest while waiting to be deployed, or simply parked there long-term to exploit the higher subscription limit.
Investors regularly hold some cash inside investment accounts while between purchases, or while waiting for dividend payments to accumulate. That activity remains possible. The new rules do not prohibit holding cash inside a non-cash ISA.
They simply remove the tax-free interest advantage on that cash, effectively making it no more attractive than a standard savings account for purely cash-sitting behaviour.
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Three Routes HMRC Is Closing Simultaneously
The factsheet identifies three specific circumvention routes the rules are designed to block.
The first is direct: subscribing the full £20,000 to a stocks and shares ISA and leaving it in cash long-term.
The second involves transfers. From April 2027, savers under 65 will no longer be permitted to transfer funds from a non-cash ISA into a cash ISA. The reverse — moving from a cash ISA into a stocks and shares ISA — will still be allowed, preserving the government's intended direction of travel toward investment.
The third targets money market funds. Savers will still be able to hold money market funds inside a non-cash ISA, but only as part of a diversified portfolio. A non-cash ISA made up entirely of money market funds — which are low-risk, cash-like instruments — will be treated as a non-qualifying investment from April 2027.
HMRC's factsheet specifies that money market funds are the only asset class that will be classified as "cash-like" for the purpose of the 100% restriction.
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The Industry Is Sceptical It Will Work
The government's stated aim is to push more savers from cash into investment products. The industry response has been mixed, with the sharpest pushback focused on whether the new structure achieves that goal.
Simon Harrington, head of public affairs at PIMFA, the Personal Investment Management and Financial Advice Association, said his organisation remains unconvinced the changes will shift consumer behaviour and warned they risk making the stocks and shares ISA itself less attractive.
Tom Riley, Nationwide Building Society's group director of retail products, offered a more supportive response, welcoming controls that preserve the full £20,000 cash ISA allowance for savers aged 65 and over while introducing limits for those under 65.
Andrew Gall, head of savings at the Building Societies Association, said the priority now is ensuring savers and providers receive sufficient clarity in advance of April 2027 to prepare for the changes — with regulations expected to be laid in the autumn.
What the Over-65 Exception Means
Individuals aged 65 and over retain the full £20,000 cash ISA limit, with entitlement applying from the start of the tax year in which they turn 65.
The transfer restriction — blocking non-cash ISA to cash ISA transfers — does not apply to this group. The 22% charge on cash interest inside non-cash ISAs and the restriction on 100% cash-like portfolios continue to apply.
The government is also consulting separately on a new, simpler product intended to support first-time buyers, which would replace the Lifetime ISA. A technical consultation on draft legislation for the anti-circumvention rules is expected to begin shortly, with the full rules coming into force from 6 April 2027.
Key Takeaways
- HMRC is introducing a 22% flat-rate charge on interest paid on cash held inside stocks and shares ISAs and innovative finance ISAs, from 6 April 2027.
- The change follows the reduction of the annual cash ISA allowance to £12,000 for savers under 65, announced at Autumn Budget 2025.
- The charge targets uninvested cash only — shares, funds, and other qualifying investments retain their full tax-free treatment.
- Three circumvention routes are being closed: long-term cash parking in non-cash ISAs, transfers from non-cash to cash ISAs, and 100% money market fund portfolios.
- Savers aged 65 and over retain the full £20,000 cash ISA limit and are exempt from the transfer restriction.
- Technical consultation on draft legislation begins shortly, with regulations laid in autumn 2026.
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Business & Finance Editor
Sarah Collins reports on markets, Wall Street, corporate news, and the global economy. She specializes in making financial news accessible to everyday readers.
