You may have seen some alarming headlines this week about HMRC introducing a 22% charge on cash held inside stocks and shares ISAs.
At first glance, that sounds like a major change to the tax-free nature of ISAs. But the key point is this: the proposed charge is not aimed at normal investments held inside a stocks and shares ISA. It is aimed at interest earned on uninvested cash sitting inside a non-cash ISA.
What is changing?
From 6 April 2027, the annual cash ISA limit is expected to fall from £20,000 to £12,000 for people under the age of 65.
Those aged 65 and over will still be able to use the full £20,000 allowance for cash ISAs.
The overall ISA allowance is expected to remain at £20,000. This means under-65s could still use the remaining allowance through a stocks and shares ISA or other eligible ISA, but they would not be able to put the full £20,000 into a cash ISA.
Why is there a 22% charge?
The new 22% charge is designed to stop people using a stocks and shares ISA as a workaround for holding cash above the new cash ISA limit.
At the moment, many stocks and shares ISAs allow investors to hold some cash. That might happen while they are waiting to invest, switching funds, receiving dividends, or simply taking time to decide what to do next.
Under the new rules, from April 2027, any interest paid on cash held inside a non-cash ISA would be subject to a flat 22% charge. This would apply even if the investor has not used their full cash ISA allowance.
Does this mean stocks and shares ISAs are being taxed?
No. This is the important bit.
The proposed charge does not apply to normal investment growth inside a stocks and shares ISA. It is not a new tax on funds, shares, investment trusts, ETFs or other mainstream investments held within a stocks and shares ISA.
The charge is aimed at interest earned on cash sitting inside a non-cash ISA.
So, if you use a stocks and shares ISA mainly for long-term investing, this change may have little or no impact on you.
Who might be affected?
This is most likely to matter if you hold a large amount of cash inside a stocks and shares ISA, particularly if that cash has been sitting there for some time.
Holding some cash temporarily within an investment ISA can be perfectly normal. For example, you may be waiting to invest, moving between funds, or holding income before reinvesting it.
The concern is more about people using a stocks and shares ISA as if it were a cash savings account.
What about transfers?
From April 2027, under-65s are also expected to be restricted from transferring money from a stocks and shares ISA into a cash ISA.
Transfers the other way, from cash ISAs into stocks and shares ISAs, are expected to remain possible.
This is another measure designed to stop people putting money into a stocks and shares ISA and then quickly moving it into a cash ISA to get around the lower cash ISA limit.
Should you do anything now?
For most people, probably not immediately. These changes are due to take effect from April 2027, and further detail is still expected before then.
However, it is a useful reminder to review how your ISAs are being used.
You may want to ask yourself:
- Do I hold large amounts of cash inside a stocks and shares ISA?
- Is that cash there temporarily, or has it been sitting there for a long time?
- Am I using the right type of ISA for my needs?
- Do I understand the difference between saving in cash and investing for the longer term?
- Have I reviewed my ISA strategy in light of the wider tax changes due from April 2027?
Cash and investments do different jobs
Cash and investments both have a role to play, but they do different jobs.
Cash can be useful for short-term needs, emergency funds and money you cannot afford to put at risk.
Investments are usually better suited to longer-term goals, but they can rise and fall in value.
The important thing is not to be pushed into investing simply because the rules are changing. Any decision should be based on your own circumstances, goals, timescales and attitude to risk.
The bottom line
The headlines may sound dramatic, but the message is more measured.
This is not a new 22% tax on all stocks and shares ISAs. It is a proposed charge on interest earned from cash held inside a non-cash ISA from April 2027.
If you hold little or no cash inside your stocks and shares ISA, the change may not affect you much at all. If you do hold larger cash balances, it is worth understanding how the rules are changing before they come in.
If you are unsure how this affects you, speak to your financial adviser before making any decisions.
Approver Quilter Financial Services Limited. 26/06/2026
About the author: David Braithwaite is a highly regarded financial expert, known to many as BBC Radio Kent’s “Money Mentor,” where he shares practical advice and insights on managing money effectively. As the founder of Citrus Financial, David has built a reputation for providing tailored financial guidance to individuals and families, helping them achieve their financial goals with confidence.
