Tax on cash in stocks and shares ISAs from April 2027

tax-newsguides
Updated
Rate on ISA cash 2027-28
22%
Effective from
Apr 2027
Cash ISA cap under 65
£12,000
Cash ISA cap 65+
£20,000

Budget 2025 confirmed two changes to ISAs from April 2027. The cash ISA limit for savers under 65 drops from £20,000 to £12,000, and savings income tax rates rise by 2 percentage points across all bands (basic rate becomes 22%). HMRC's November 2025 tax-free savings newsletter also said interest on cash held inside a stocks and shares ISA or an innovative finance ISA will be charged from April 2027. The June 2026 anti-circumvention factsheet has since put a number on it: a flat-rate 22% charge on any interest or alternative finance return paid on cash in a non-cash ISA, in force from 6 April 2027. The draft regulations went out for technical consultation between 25 June and 2 August 2026. That consultation has closed, and the regulations are due to be laid in autumn 2026.

One detail the headlines miss: the draft does not write 22% into law. It charges income tax at the savings basic rate in force for the year. The savings basic rate becomes 22% in April 2027, which is where the number comes from. Move that rate in a later Budget and the charge on your ISA cash moves with it.

This is not CGT

Sell a fund inside the ISA at a profit, you still owe no CGT. Receive a dividend from a UK share, still tax-free. The new charge applies to one thing: interest on cash sitting in the wrapper.

Money market funds count as cash

The obvious way round a tax on cash is to hold something that behaves like cash, so the rules define a category of cash-like assets. From April 2027 that category is money market funds and nothing else. Some cash-like exposure inside a diversified portfolio is fine. An ISA made up entirely of cash-like assets is not — it becomes a non-qualifying investment, and your manager will ask you to reinvest or remove it.

Who feels it

If your ISA is fully invested in equities or funds, the charge is a rounding error. If you have been parking £20,000 in the cash sweep account waiting for a market dip, the charge is aimed at you. At 22% and 4% interest, that costs you about £176 a year.

You cannot get it back. Your ISA manager pays the charge to HMRC within six months of the end of the tax year, and the draft treats that payment as final and conclusive. There is no repayment claim, so it lands the same way on a non-taxpayer as on a higher-rate one. The Personal Savings Allowance does not soften it either — the allowance does not apply to anything paid inside an ISA.

What to do

Nothing in 2026-27. The charge starts in 2027-28. Before April 2027, check how much cash is actually sitting inside any stocks and shares ISA.

If you are under 65 and want that cash in a cash ISA, move it before April 2027. From then on, transfers from a stocks and shares ISA into a cash ISA are blocked for your age group. The reverse direction, cash ISA into stocks and shares, stays open.

If you are 65 or over, there is no rush. The transfer ban is disapplied from the tax year you turn 65, and you keep the £20,000 cash ISA limit rather than dropping to £12,000. The 22% charge and the cash-like portfolio rule still apply to you.

If you need a buffer, a separate cash ISA, or an ordinary savings account inside your Personal Savings Allowance, is a better home for it.

Where this touches CGT

Bed and ISA still works the same way. See our walkthrough. Disposals inside an ISA stay off your SA108. The new charge never reaches your tax return at all: your ISA manager pays it to HMRC, and you are not required to declare interest paid on an ISA. So nothing about the CGT pipeline in our calculator changes, and there is no new box to fill in.

Sources