Rachel Reeves is reportedly planning to impose a new tax on interest earned from cash held in stocks and shares ISAs. The upcoming reform in April 2027 will see a reduction in the annual cash ISA limit for individuals under 65 from £20,000 to £12,000.
Despite the cut in the cash ISA limit, the overall ISA allowance for under-65s will remain at £20,000. This means individuals could allocate £12,000 to a cash ISA and £8,000 to a stocks and shares ISA or invest the entire allowance in stocks and shares to promote investment and economic growth.
Recent reports indicate that a 22% charge on interest earned from cash in stocks and shares ISAs will be implemented starting April 2027, as confirmed in last year’s Budget announcement. HMRC had previously hinted at the charge but had not disclosed the specific rate.
Rachel Vahey from investment platform AJ Bell expressed concerns over the tight timeline for implementing the change, urging swift resolution. The Treasury emphasized that the reform aims to encourage more people to invest in stocks and shares, which historically yield better returns than cash savings, while maintaining the £20,000 tax-free limit.
The adjustment will not mandate individuals to transfer existing savings from their Cash ISA and is expected to benefit most savers by maintaining tax-free savings. Various types of ISAs exist, including cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs, with children having Junior ISAs.
Alongside the cash ISA rate reduction, an increase in the tax rate on savings interest from other accounts is set to take effect in April 2027. Basic-rate taxpayers will see their tax rate rise from 20% to 22%, higher-rate taxpayers from 40% to 42%, and additional rate taxpayers from 45% to 47%.
Tax is applicable on savings interest exceeding specific thresholds, with ISAs offering tax-free savings within the annual allowance.