ISA Reform 2027: Treasury Confirms 22% Charge on Cash in Stocks & Shares ISAs

If you hold cash inside a Stocks & Shares ISA, a significant rule change is coming in April 2027 — and it could cost you money. The Treasury has confirmed that interest earned on cash sitting in Stocks & Shares ISAs will be hit with a 22% charge from April 2027, as part of a sweeping overhaul of how tax-free savings work in the UK.

What Has the Treasury Announced?

The centrepiece of the reform is a reduction in the Cash ISA allowance from £20,000 to £12,000 per tax year, while the allowance for Stocks & Shares ISAs and Innovative Finance ISAs remains at £20,000. The government's intention is to nudge savers towards investing in the stock market rather than parking money in cash.

To stop people circumventing the lower Cash ISA limit by holding cash inside a Stocks & Shares ISA, MoneySavingExpert reports that HMRC will introduce a 22% charge on interest paid on cash held in those accounts. This is an unusual measure — essentially a penalty rate designed to make it uneconomical to use a Stocks & Shares ISA as a cash savings vehicle.

There are also plans to prevent transfers from non-Cash ISAs into Cash ISAs for people under 65, and to prevent holding 100% of a non-Cash ISA in Money Market Funds, which are considered cash-like assets.

Who Gets a Better Deal?

Savers aged 65 and over will be protected. They will retain a higher Cash ISA allowance of £20,000 — the same as today — and will not be subject to the transfer restrictions that apply to younger savers. This age threshold applies from the start of the tax year in which you turn 65.

What Are Money Market Funds?

Under the new rules, according to SJP, Money Market Funds will be the only assets classified as "cash-like" for the purposes of these rules. Individual shares, funds, investment trusts, ETFs, and corporate or government bonds will not be treated as cash-like — so you can still hold those in a Stocks & Shares ISA without penalty. But if you park your ISA money in a Money Market Fund while waiting to invest, and that allocation makes up 100% of your ISA, the new 22% charge will apply to any interest earned.

How Does the UK Compare?

In the United States, the equivalent of the Cash ISA is the High-Yield Savings Account — which offers no special tax treatment, with all interest subject to income tax. The US Roth IRA, which is the closest equivalent to a Stocks & Shares ISA, is only available up to $7,000 per year. In Australia, there is no equivalent to an ISA at all — savings interest is taxed at your marginal rate. In this context, even after the UK reforms, British savers retain a significant tax advantage over many international peers.

What Should You Do Before April 2027?

• Use your full Cash ISA allowance for 2026/27 now. You can still put up to £20,000 into a Cash ISA in the 2026/27 tax year before the new lower £12,000 limit kicks in for 2027/28.
• Review cash held in your Stocks & Shares ISA. If you have a large cash balance sitting uninvested inside a Stocks & Shares ISA, consider whether to invest it or move it to a Cash ISA before the 22% charge takes effect.
• If you're 65 or turning 65 in the 2027/28 tax year, you will benefit from the higher £20,000 Cash ISA limit and won't face transfer restrictions.
• Don't confuse the allowances. You can still save a combined £20,000 across all ISA types each year — the change only affects how much of that can go into a Cash ISA.

Key Numbers

• £12,000 — new annual Cash ISA allowance from April 2027 (under-65s)
• £20,000 — Cash ISA allowance retained for over-65s, and Stocks & Shares ISA limit unchanged
• 22% — charge on interest earned on cash in Stocks & Shares ISAs from April 2027
• £88,000 — not relevant here; the ISA annual subscription limit remains per person, per tax year

Sources

• Gov.uk — ISA Reform 2027 Anti-Circumvention Factsheet
• MoneySavingExpert — Cash Investment ISA Reforms
• MoneyWeek — What the Cash ISA Reforms Mean for You
• SJP — ISA Changes: 22% Charge on Cash

Educational content only — not financial advice.