ISA Reform 2027: 22% Tax on Cash in Stocks & Shares ISAs?
Published / Last Updated on 26/05/2026
From 6 April 2027, the Government is considering plans to introduce a 22% tax charge on interest earned on cash held inside Stocks & Shares ISAs, alongside new cash subscription caps, transfer bans, and anti‑circumvention rules.
These reforms represent the biggest overhaul of the ISA system in over a decade and are designed to push more savers toward equity investment.
1. Annual ISA Allowances from April 2027
Total ISA allowance remains £20,000, but how you can use it will depend on your age.
Over 65s
- Full £20,000 can be placed in:
- Cash ISAs, or
- Stocks & Shares ISAs, or
- Any combination of the two.
Under 65s
- Still receive the full £20,000 allowance, but:
- Maximum £12,000 may be subscribed to Cash ISAs.
- The remaining £8,000 (or the full £20,000) may be placed in Stocks & Shares ISAs.
This is a significant reduction from the current unlimited cash allocation.
2. New Anti‑Circumvention Rules
To prevent savers from bypassing the reduced cash limit, HMRC will introduce strict measures:
a) Transfer Bans
- Under‑65s cannot transfer:
- Stocks & Shares ISA → Cash ISA
- Innovative Finance ISA → Cash ISA
This closes the obvious workaround of subscribing to S&S ISAs and immediately moving the money to cash.
b) Cash‑Like Asset Restrictions
HMRC will apply tests to determine whether assets held in a Stocks & Shares ISA are “genuine investments” or effectively cash in disguise.
Likely to be targeted:
- Money market funds
- Ultra‑short‑duration bond funds
- Liquidity funds
- Any low‑risk instrument behaving like cash
If held in “excessive proportions”, these may be treated as non‑qualifying assets.
c) 22% Tax Charge on Cash Held in S&S ISAs
- Interest earned on cash balances inside Stocks & Shares ISAs will face a 22% charge.
- This aligns with the new savings tax rate also rising to 22%.
- Mirrors the pre‑2014 regime, when a 20% charge applied.
This effectively removes the tax advantage of holding cash inside an S&S ISA.
3. Why the Government Is Doing This
The Treasury argues the reforms will:
- Encourage more people to invest in equities
- Channel more capital into UK businesses
- Reduce the use of ISAs as tax‑free cash shelters
The Chancellor framed the changes as part of a wider push to boost investment in British companies.
4. Practical Implications for Savers
Under 65s
- Cash ISA capacity drops to £12,000.
- Holding cash inside an S&S ISA becomes tax‑inefficient.
- Money market funds may no longer be safe “parking spots”.
- Transfers into cash ISAs will be restricted.
Over 65s
- No change to flexibility — they retain full access to the £20,000 cash allowance.
- Still need to watch for the 22% charge if holding cash inside an S&S ISA.
All savers
- The ISA system becomes more complex.
- Asset allocation decisions will matter more.
- Platforms may need to warn or block certain holdings.
5. What Still Needs Clarification
The Treasury has not yet finalised:
- The exact definition of “cash‑like” investments
- Thresholds for “excessive proportions”
- How the 22% charge will be calculated and reported
- Transitional rules for existing holdings
- Whether exemptions will apply for short‑term cash awaiting investment
We are still pressing for clarity because the timeline is extremely tight.
6. In Summary
- From April 2027, cash inside a Stocks & Shares ISA will be taxed at 22%.
- Under‑65s will be limited to £12,000 per year in Cash ISAs.
- Transfers from S&S ISAs to Cash ISAs will be banned for under‑65s.
- Money market funds and similar low‑risk assets may be restricted.
- Over‑65s retain full flexibility to use the entire £20,000 allowance for cash.
- These reforms aim to push more savers into equity markets.
| Feature | Current Rules (2024/25–2026/27) | Proposed Rules from 6 April 2027 |
|---|---|---|
| Total ISA Allowance | £20,000 per tax year | £20,000 per tax year (unchanged) |
| Cash ISA Allowance (Under 65s) | Up to full £20,000 | Capped at £12,000 |
| Cash ISA Allowance (65+) | Up to full £20,000 | Full £20,000 allowed |
| Stocks & Shares ISA Allowance | Up to full £20,000 | Up to full £20,000 (unchanged) |
| Cash Held Inside S&S ISA | No tax on interest | 22% tax charge on interest |
| Money Market Funds in S&S ISA | Fully permitted | May be classed as “cash‑like” and restricted |
| Transfers: S&S → Cash ISA | Allowed | Banned for under‑65s |
| Transfers: IFISA → Cash ISA | Allowed | Banned for under‑65s |
| Transfers: Cash ISA → S&S ISA | Allowed | Allowed (no change) |
| Anti‑Circumvention Rules | None | New rules to block cash‑like workarounds |
| Definition of “Cash‑Like” Assets | Not applicable | HMRC to apply tests; excessive holdings may be non‑qualifying |
| Interest Tax Rate (General Savings) | 20% basic rate | 22% basic rate (aligned with ISA cash charge) |
| Short‑Term Cash Parking in S&S ISA | Common practice | May trigger 22% charge or breach cash‑like rules |
| Policy Objective | Neutral between cash and investments | Push savers toward equities and UK business investment |
| Implementation Timeline | Current rules stable | April 2027 (industry warns timeline is tight) |
Key Takeaways
-
Under‑65s lose the ability to shelter unlimited cash in ISAs.
-
Cash inside a Stocks & Shares ISA becomes tax‑inefficient due to the 22% charge.
-
Money market funds may be restricted or treated as non‑qualifying.
-
Over‑65s retain full flexibility to use the entire £20,000 for cash.
-
Transfers into Cash ISAs will be tightly controlled to prevent circumvention.
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The reforms aim to push more money into UK equity markets, not cash.