Savers may be able to use a 1p loophole to avoid a crackdown on cash held in ISAs. The annual cash ISA limit for under-65s is being cut from £20,000 to £12,000 from April 2027. There will still be an overall £20,000 ISA allowance for under-65s, meaning you could save £12,000 into a cash ISA and £8,000 into a stocks and shares ISA. You could also save your entire £20,000 allowance into stocks and shares. The idea is to encourage more people to invest and stimulate economic growth. Over-65s will still be able to save up to £20,000 into a cash ISA.
It has been reported that savers will face a 22% charge on interest earned from cash held in stocks and shares ISAs from April 2027. However, the Telegraph reports that this can be avoided as long as 100% of the investable assets are not held in cash-like investments, including money market funds. In theory, someone could invest £12,000 into a cash ISA, then £7,999.99 in cash in a stocks and shares ISA, and the final 1p in the stock market.
HMRC had previously said that anyone holding cash in stocks and shares accounts from this date would face a charge on interest, but had not confirmed the rate. A Treasury spokesman previously told the Mirror: "We are reforming the cash Isa to encourage more people to invest in stocks and shares – which have historically performed better than cash savings – and we have retained the generous £20,000 tax-free limit. These changes will make people better off and will not require anyone to move existing savings from their Cash ISA. The vast majority of savers will continue to pay no tax on their savings and HMT and HMRC are working at pace with industry on the detailed rules and will update on next steps in due course." The Mirror has contacted the Treasury for an updated comment.
The main types of ISAs are cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs. Children have their own version called Junior ISAs. Some ISAs have lower annual limits - for example, you can only save £4,000 into a Lifetime ISA every tax year. As well as the cash ISA rate being cut, it has been confirmed that the rate of tax paid on savings interest earned in other types of accounts is going to rise from April 2027. If you are a basic-rate taxpayer, you pay 20% tax when you earn more than £1,000 a year in savings interest. This will rise to 22%. Higher-rate taxpayers pay 40% tax when they earn more than £500 in savings interest a year. This will go up to 42%. Additional rate taxpayers have to pay 45% tax on all their savings interest - this will rise to 47% from April 2027. You pay tax on the savings interest you earn above these thresholds. If you have an ISA, you only start to pay tax above the annual allowance.
