Interest on cash in stocks and shares ISAs will be taxed
Jacob Grattage, Reporter, Business & Accountancy
Plans to tax interest paid on cash held in stocks and shares ISAs will mean they can no longer be promoted as tax-free, warn experts
From April 2027, the annual cash ISA subscription limit will be cut to £12,000 from the current £20,000 for savers under the age of 65, to encourage use of stocks and shares ISAs, which have been frozen at a £20,000 limit until April 2031.
To prevent tax avoidance with people shifting money between ISAs, HMRC will ‘charge [tax] on any interest paid on cash held in a stocks and shares or innovative finance ISA’.
Michael Summersgill, CFO at AJ Bell said this ‘could potentially mean stocks and shares ISAs, which allow people to hold cash can no longer be marketed as “tax-free”, weakening the appeal of the most popular investment account in the UK market’.
Summersgill said taxing uninvested cash would ‘punish retail investors for using the stocks and shares ISA the way it was designed to be used’.
Urging the government to avoid adding ‘horrendous complexity’ to ISAs, he said the chancellor should steer clear of any restrictions on cash-like investments, which form a ‘central part of many investors’ portfolio construction’.
Summersgill added: ‘The simple fact is that cash passes through stocks and shares ISAs all the time. Contributions are made in cash, dividends are received in cash, fees are paid in cash, and risk-based assets have to be sold to create the cash for withdrawals.’
After the anti-avoidance measures were set out in a recent HMRC tax-free savings newsletter, there were concerns that the Treasury was considering a 22% flat-rate tax on any interest earned from cash holdings held in stocks and shares ISAs.
When asked about the details, the Treasury said there would be a full consultation on the proposals.
A government spokesperson told Business & Accountancy Daily: ‘To encourage greater investment in stocks and shares, we’re developing changes to ISA rules which will prevent circumvention of the new lower cash ISA limit.
‘We’re already working closely with industry and will publish clear guidance before the changes come into effect.’
The government said to achieve the policy aim new rules to deter holding cash were necessary, to prevent ‘easy circumvention’.
However, the Treasury confirmed it was currently working through the specifics and had already engaged with the sector on the potential shape of these rules since the Budget and was ‘listening to concerns and engaging collaboratively with the aim of minimising burdens on providers and consumers’.
A consultation on the draft legislation, which will be made by amendments to the ISA Regulations, will be in place by April 2027.
HMRC Tax-free savings newsletter 19 November 2025 – updated 22 December 2025
