New ISA rules set to take effect from next year have introduced a 22% tax on interest earned on cash held within stocks and shares ISAs, a move designed to close a loophole in the Government's push for Britons to invest rather than hold cash savings. However, personal finance experts warn that the increasing number of rule changes could leave savers confused and at risk of missing out on tax-free opportunities.
Key Point: Cash ISAs Not Taxed
Kevin Mountford, personal finance expert and co-founder of Raisin UK, stressed that the new rules do not mean cash ISAs are suddenly being taxed. He said: “The key point for consumers is that this does not mean cash ISAs are suddenly being taxed. A cash ISA is still designed to let people earn savings interest tax-free, within the usual ISA allowance.” Instead, the crackdown targets cash held in other types of ISAs, such as stocks and shares ISAs.
What the Change Means for Savers
Mountford explained that the 22% tax applies to uninvested money held within an investment account, not money in a dedicated cash ISA. “Someone using a cash ISA for their savings should not panic, but anyone holding large cash balances inside a stocks and shares ISA may need to check how their provider treats that money from April 2027,” he said. He warned that if people do not understand what type of ISA they have or where their cash is held, they could miss out on tax-free savings opportunities.
Action Steps for Savers
Mountford urged savers to check their ISA type and where their cash is located. If they find cash in a stocks and shares ISA, he recommended speaking to the provider about how the rule changes could affect them. “For savers, the priority should be to check what type of ISA they have and where any cash is sitting,” he said. He also noted that with the personal savings allowance unchanged and savings tax rates due to rise from April 2027, more people could find themselves paying tax on interest held outside an ISA. “Consumers should not feel rushed into investing because of rule changes, but they should take this as a reminder to review their savings, compare rates and make sure they are using tax-free allowances where possible,” Mountford added.
