Millions of savers could soon see the tax-free status of investment ISA cash eroded under plans being prepared in Whitehall, as the government pushes ahead with reforms aimed at shifting household money into equities.
Rachel Reeves is considering a 22% charge on interest earned from cash held inside stocks and shares ISAs, according to reports based on discussions with officials and industry figures. The move would take effect from April 2027 and is intended to close what ministers view as a route for bypassing tighter cash ISA limits.
The proposal comes alongside a broader overhaul of the ISA system already set out in last year’s Budget, which includes cutting the annual cash ISA allowance for under-65s from £20,000 to £12,000. The remaining allowance can still be used within stocks and shares ISAs, part of a wider attempt by the Treasury to encourage greater participation in UK equity markets.
HM Revenue and Customs has already confirmed that cash-like holdings inside investment ISAs will fall within the scope of new restrictions from 2027, although the exact tax rate had not previously been set out. The emerging 22% figure would broadly align with the basic rate applied to savings interest in other parts of the tax system.
The changes would also capture instruments commonly used by investors parking cash temporarily, including money market funds. Under the proposed framework, certain transfers between ISA types are expected to be restricted, limiting the ability to shift funds from investment ISAs back into cash shelters.
Officials at HM Treasury are understood to have been working through design details with banks, brokers and building societies for several months, with further technical discussions ongoing. Industry participants have raised concerns about implementation timing and the practical impact on savers holding low-risk cash positions inside investment accounts.
Investment platform AJ Bell has warned that the timetable leaves little room for adjustment, with firms still awaiting clarity on carve-outs and how short-term cash holdings will be treated.
Consumer finance campaigner Martin Lewis has previously questioned whether the policy will achieve its intended outcome, suggesting that many savers prefer certainty over market exposure and may be reluctant to shift behaviour in response to tax changes.
The government maintains that the reforms are designed to encourage long-term investment rather than short-term cash saving, arguing that equities have historically delivered stronger returns over time. Officials also stress that the overall £20,000 ISA allowance remains in place, even as its structure is reshaped.
MoneySavingExpert has highlighted growing concern among savers as uncertainty builds around how the new rules will operate in practice, particularly for those using ISAs as a flexible cash parking facility.
With the April 2027 deadline approaching, the final shape of the rules is expected to be confirmed shortly, though several key elements, including exemptions and technical definitions, remain under discussion.
