The government has announced important changes to the rules governing Individual Savings Accounts, including new restrictions affecting Stocks and Shares ISAs.
From 6 April 2027, interest earned on uninvested cash held inside a Stocks and Shares ISA will face a flat 22% charge. New restrictions will also affect transfers from Stocks and Shares ISAs into Cash ISAs.
These changes are connected to the government’s decision to reduce the annual Cash ISA allowance for most savers. They are intended to encourage more people to invest rather than holding large amounts of cash inside tax-free accounts.
In this guide, Clayton Stirling explains what is changing, when the new rules take effect and what Stocks and Shares ISA holders should consider before April 2027.
What Is Changing With Stocks and Shares ISAs?
The main Stocks and Shares ISA changes announced by the government are:
- A 22% charge on interest earned from cash held inside a Stocks and Shares ISA.
- New restrictions on transfers from Stocks and Shares ISAs into Cash ISAs.
- Restrictions on holding a portfolio consisting entirely of money market funds.
- The Stocks and Shares ISA allowance will remain at £20,000.
- The overall annual ISA allowance will remain at £20,000.
The new rules are due to take effect from 6 April 2027. You can read more about this on the official government website – ISA reform 2027: anti-circumvention rules factsheet.
It is important to understand that the 22% charge will not generally apply to investment growth, share profits or dividends simply because they are held inside a Stocks and Shares ISA. It specifically applies to interest paid on cash held within the investment ISA.
Is the Stocks and Shares ISA Allowance Being Reduced?
No. The annual Stocks and Shares ISA allowance will remain at £20,000.
The overall ISA allowance will also remain at £20,000. This is the maximum amount an individual can usually contribute across their different ISAs during a single tax year.
For example, if someone contributes £8,000 to a Cash ISA, they would ordinarily have £12,000 of their overall ISA allowance remaining for other eligible ISA contributions during that tax year. Read more about Individual Savings Accounts (ISAs).
The allowance reduction announced by the government applies specifically to Cash ISAs for people under the age of 65.
What Is Happening to the Cash ISA Allowance?
From 6 April 2027, the annual Cash ISA allowance for people under 65 will reduce from £20,000 to £12,000.
The overall ISA allowance will remain £20,000, meaning an eligible saver could potentially use the remaining allowance for investments held through a Stocks and Shares ISA or another qualifying ISA.
People aged 65 and over will continue to have a Cash ISA allowance of £20,000.
The government says these changes are intended to encourage a greater culture of retail investment while still allowing people to hold a significant amount in cash savings.
What Is the New 22% Charge?
From April 2027, a flat 22% charge will apply to interest earned on cash held inside a Stocks and Shares ISA or Innovative Finance ISA.
Stocks and Shares ISA providers commonly allow investors to keep some money as cash. This may happen while someone is deciding where to invest, waiting for an opportunity or preparing to pay fees or make a withdrawal.
Under the new rules, cash can still be held inside a Stocks and Shares ISA. However, interest paid on that cash will be subject to the 22% charge.
The ISA manager will be responsible for paying the charge to HMRC. Individual investors will not normally need to declare the ISA interest to HMRC themselves.
Does the 22% Charge Apply to Investments?
The announced 22% charge relates to interest earned on uninvested cash held inside a non-cash ISA. It is not a general 22% tax on Stocks and Shares ISAs.
It should not normally apply simply because shares, investment funds or other eligible assets increase in value within the ISA.
One of the principal benefits of a Stocks and Shares ISA remains that qualifying income and gains generated by investments held inside it are generally protected from UK Income Tax and Capital Gains Tax.
However, tax treatment depends on individual circumstances, and ISA rules can change. Anyone uncertain about their tax position should obtain appropriate professional advice.
Why Is the Government Introducing the Charge?
The new charge is intended to prevent savers from getting around the reduced Cash ISA allowance.
Without additional rules, someone under 65 could potentially place more than the new £12,000 Cash ISA limit into a Stocks and Shares ISA, leave the money uninvested and continue earning tax-free interest on it.
The government considers this inconsistent with the purpose of the new system, which is designed to encourage more people to invest some of their ISA allowance rather than keeping all of it in cash.
Applying a charge to interest on uninvested cash is intended to make Stocks and Shares ISAs less attractive as substitutes for Cash ISAs. Do I Need An Accountant In Gravesend?
Can You Still Hold Cash in a Stocks and Shares ISA?
Yes. Investors will still be permitted to hold cash within a Stocks and Shares ISA.
This is important because some cash may be needed for:
- Paying account or investment fees.
- Waiting for an investment transaction to complete.
- Receiving proceeds from the sale of an investment.
- Receiving dividends before they are reinvested.
- Preparing to make a withdrawal.
- Temporarily adjusting an investment portfolio.
The change does not ban cash from Stocks and Shares ISAs. It changes the treatment of interest earned on that cash.
Investors who regularly hold substantial uninvested cash inside an ISA may want to review the new rules before they take effect. Do You Pay Tax On Stocks And Shares In The UK?
What Happens to Money Market Funds?
Money market funds invest in short-term, relatively liquid assets and are sometimes used as an alternative to holding cash.
Under the announced rules, money market funds will be treated as cash-like assets for reporting purposes. However, a diversified Stocks and Shares ISA will still be allowed to contain some exposure to money market funds.
An investor will not be permitted to hold a Stocks and Shares ISA portfolio consisting entirely of money market funds.
The precise investments permitted within an ISA and the way providers implement the rules may depend on the final regulations and guidance.
Are ISA Transfer Rules Changing?
Yes. From April 2027, people under 65 will no longer be able to transfer money from a Stocks and Shares ISA or Innovative Finance ISA into a Cash ISA.
Transfers in the opposite direction—from a Cash ISA to a Stocks and Shares ISA—will continue to be permitted.
Transfers between Stocks and Shares ISAs should also remain possible, subject to the relevant provider’s processes and ISA rules.
This could be important for someone who expects to move investments into cash later. For example, a person approaching a major purchase may previously have planned to sell their investments and transfer the proceeds into a Cash ISA.
Investors should not make rushed decisions based solely on the rule changes. The value of investments can rise or fall, and any decision should account for personal objectives, timeframes and tolerance for risk.
When Do the New ISA Rules Start?
The new rules are scheduled to take effect on 6 April 2027, at the beginning of the 2027/28 tax year.
Until then, the current overall ISA allowance remains £20,000, subject to existing ISA rules.
The government may publish further legislation and guidance before implementation. ISA providers are also likely to contact customers as they adapt their accounts and systems to the new requirements.
Will Existing Stocks and Shares ISA Investments Be Taxed?
The announcement does not introduce a general tax on existing investments held within a Stocks and Shares ISA.
The key new charge relates to interest paid on cash holdings within non-cash ISAs from April 2027.
Stocks, shares and eligible investment funds held within an ISA should continue to benefit from the established ISA tax treatment, subject to the rules applying to the relevant asset and account.
Investors should be cautious about headlines suggesting that all Stocks and Shares ISA returns will be taxed at 22%. That is not an accurate description of the announced policy.
What Should ISA Holders Consider?
Before April 2027, ISA holders may want to understand:
- How much uninvested cash they currently hold in a Stocks and Shares ISA.
- Whether that cash earns interest.
- Why they are holding the money as cash.
- Whether they may need to transfer money into a Cash ISA in the future.
- How their ISA provider intends to apply the new rules.
- Whether their portfolio contains a significant allocation to money market funds.
- Whether their ISA contributions remain within the annual allowance.
Holding cash is not automatically inappropriate. It may serve a legitimate short-term purpose within an investment account. The new rules simply mean that interest earned on that cash will be treated differently.
The right course of action will depend on the individual’s circumstances. Investment decisions should not be based on tax treatment alone.
Do You Pay Tax When You Withdraw Money From a Stocks and Shares ISA?
Withdrawals from a Stocks and Shares ISA are not normally subject to UK Income Tax or Capital Gains Tax.
However, withdrawing money does not always restore the amount of ISA allowance available during the same tax year. This depends on whether the ISA is flexible and on the provider’s terms.
It is therefore important to check the rules before withdrawing and attempting to replace money within an ISA.
The new 2027 restrictions on transfers from Stocks and Shares ISAs to Cash ISAs are different from ordinary withdrawals. Taking money out of an ISA may cause it to lose its tax-protected status unless it is moved through an eligible ISA transfer or replaced under applicable flexible ISA rules.
Frequently Asked Questions
Will Stocks and Shares ISAs be taxed at 22%?
No. The government has not announced a general 22% tax on Stocks and Shares ISA investments.
The flat 22% charge will apply to interest earned on uninvested cash held inside a Stocks and Shares ISA or Innovative Finance ISA from April 2027.
Will the Stocks and Shares ISA allowance remain £20,000?
Yes. The annual limit for Stocks and Shares ISAs will remain £20,000, subject to the overall ISA allowance and any contributions made to other types of ISA during the same tax year.
Can I still hold cash inside my investment ISA?
Yes. You will still be able to hold cash inside a Stocks and Shares ISA, but interest paid on that cash will face the new 22% charge.
Do I have to declare ISA cash interest to HMRC?
Under the announced rules, the ISA manager will pay the 22% charge to HMRC. Individual investors will not normally need to declare the interest themselves.
Can I transfer a Cash ISA into a Stocks and Shares ISA?
Transfers from Cash ISAs to Stocks and Shares ISAs are expected to remain permitted.
However, from April 2027, people under 65 will not be able to make transfers in the other direction—from a Stocks and Shares ISA into a Cash ISA.
Will people over 65 be affected?
People aged 65 and over will retain the £20,000 Cash ISA allowance. However, the government’s factsheet indicates that the charge on interest earned from cash held within non-cash ISAs will still form part of the broader ISA reforms.
Individuals should check the final rules and their provider’s guidance before making decisions.
Can I avoid the charge by holding a money market fund?
The government has said diversified portfolios may include money market funds, but a Stocks and Shares ISA cannot consist entirely of money market funds.
The tax and regulatory treatment of a money market fund is not the only factor to consider. Money market funds are investments and are not the same as protected bank deposits.
How Clayton Stirling Can Help
The ISA changes may affect the way some individuals organise their savings and investments, particularly where they receive interest, dividends or gains from assets held outside an ISA.
Clayton Stirling provides clear, practical tax advice to individuals and businesses in Gravesend, across Kent and throughout the UK.
We can help you understand:
- How investment income is taxed outside an ISA.
- Whether dividends need to be reported to HMRC.
- When Capital Gains Tax may apply.
- Whether you need to complete a Self Assessment tax return.
- How different sources of income affect your overall tax position.
- What information must be included in your tax return.
We do not provide regulated investment advice or recommend particular investments. Where investment advice is required, you should speak to an appropriately authorised financial adviser.
Speak to Clayton Stirling
If you are unsure how income from savings, shares or investments affects your tax position, Clayton Stirling can help.
Our Chartered Accountants and Tax Advisers provide straightforward advice based on your individual circumstances.
Contact our Gravesend team today:
Telephone: 01474 321080
Email: accounts@claytonstirling.co.uk
This article is provided for general information only and does not constitute tax, legal or investment advice. ISA rules and tax treatment may change and depend on individual circumstances. You should obtain professional advice before taking action.