The Treasury has been heavily criticised today after announcing plans to tax the interest earned on cash held in stocks and shares ISAs.
The move had been rumoured for some time as a so-called ‘anti avoidance’ measure.
Promote your vacancy to thousands of professionals on Financial Planning Jobs
Our specialist jobs service Financial Planning Jobs can help you reach nearly 12,000 financial professionals. You can set up an Employer Profile and post your job the same day on Financial Planning Jobs (terms apply). Dozens of Financial Planning and Paraplanning firms have used our affordable service to recruit new talent.
It will mean the tax free status of cash held within stocks and shares ISAs will end.
The Treasury, in a guidance note issued today, said it would change the rules to “deter” people holding cash in non-cash ISAs.
Industry reaction to the plans has so far been negative
Simon Harrington, head of public affairs at wealth manager trade body PIMFA, said: “We remain disappointed that the government has chosen to introduce such draconian anti-avoidance measures and, by extension, further complexity into the ISA regime, with little to no evidence that consumers will behave as these measures assume. When this policy was announced in late November, it was justified on the basis that substantive changes made to the ISA regime would be made in service of getting more people to invest who currently do not.
“We remain sceptical that these changes will have any real effect on consumer investment behaviour and fear they will do the opposite. Far from encouraging take up, they risk making the Stocks and Shares ISA, the very wrapper the government wants people to use, less attractive.”
Andrew Tully, technical services director at platform Nucleus, said: “The Government’s aim is to encourage more people to invest – specifically in UK assets – rather than holding large amounts in cash. Unfortunately, the outcome is likely to be the exact opposite of that policy intent, instead discouraging investment and damaging the ISA brand.”
The Treasury said in a statement: “In order to protect the integrity of the new cash ISA limit and ensure the (ISA) reforms achieve their intended aim of encouraging retail investment so savers get more from their investments/savings, the following rules will be introduced to prevent (italics added) the following:
- subscribe up to £20,000 cash in a non-Cash ISA and leave it there long-term earning tax-free interest
- subscribe £20,000 to a non Cash ISA and then transfer those funds to a Cash ISA
- subscribe £20,000 to a non Cash ISA and use the funds to purchase wholly cash-like investments
Chancellor Rachel Reeves had already announced in her Autumn 2025 Budget that she would scale back the benefits of cash ISAs for millions to encourage more people to invest in stocks and funds.
Ms Reeves said at the time that the Cash ISA allowance would be reduced to £12,000 for most people while the limit for Stocks and Shares and Innovative Finances ISA (non Cash ISAs) would remain at £20,000. The Cash ISA allowance for those aged 65 and over would remain at £20,000.
The new rules are being introduced, the Treasury said, to, “minimise the opportunity for the lower Cash ISA limit to be circumvented, while preserving the flexibility needed for legitimate investment activity within non-Cash ISAs.”
For holders of stocks and shares ISAs the rule change will apply a 22% tax charge on interest paid on cash held in non Cash ISAs, costing some ISAs holder with significant cash holdings potentially hundreds of pounds in extra tax a year.
Non-Cash ISA portfolios made up of 100% cash-like assets will be designated “non-qualifying investments” but cash-like assets will be eligible for non Cash ISAs, provided that they are partial allocations and do not make up 100% of the investments in an individual’s non Cash ISA account.
From April 2027 cash-like assets will be defined as Money Market Funds only and the Treasury will require ISA managers to report their market value via the established end of year statistical return. A money market fund is defined as a low-risk, highly liquid mutual fund that invests in short-term debt securities.
In addition, transfers from non Cash ISAs into Cash ISAs will not be permitted although it will remain possible to transfer from a Cash ISA to a non Cash ISA.
