Historically, ISAs have been considered a tax-free investment opportunity, but the latest notes on upcoming changes to this scheme may mean that interest on cash held in a stocks and shares ISA may result in new tax liabilities.
Announced at the Autumn Budget in 2025, the changes to the ISA rules for under 65s has already cultivated their fair share of both controversy and celebration from investors and savers.
The annual cash ISA subscription limit will be cut to £12,000, from the current £20,000 allowance, for savers under the age of 65 from April 2027.
The existing total ISA limit will remain frozen at £20,000 until at least April 2031, with the Government encouraging those under the age of 65 to sink the remaining £8,000 of their savings into stocks and shares instead.
However, spotting a potential gap in their plans, HMRC will “charge [tax] on any interest paid on cash held in a stocks and shares or innovative finance ISA” to prevent people using this as a loophole to transfer tax-free money between the two different ISA products.
Already, experts in the investment industry have suggested that such a change may mean that banks, building societies and other ISA providers will no longer be able to market the products as tax-free.
These measures were explained in HMRC’s most recent tax-free savings newsletter, which also sparked condemnation after it was suggested that the Treasury might be considering a flat-rate on any interest earned from cash holdings held in stocks and shares ISAs set at 22 per cent.
The Treasury is said to be currently working through the specifics of the new ISA reforms and is engaging with members of the banking and investment industry for feedback.
However, it has confirmed that a wider consultation on the draft legislation, which will be made by amendments to the ISA Regulations, will be opened before April 2027.
ISAs are likely to remain an important element of annual tax planning for most individuals.
However, if you have any concerns about these plans and how they may impact your tax planning, please get in touch.
Jim Botton – Pleasure Beach (Skegness)
