From April 2027, the rules around cash held in ISAs are changing – including a new 22% charge on interest paid on cash held in investment ISAs. Here’s what’s changing, who is affected, and why it’s worth reviewing your savings before the new rules come in.
Government confirms 22% charge on cash held in investment ISAs
The government has confirmed a new 22% charge on interest paid on cash held within Stocks and Shares ISAs and Innovative Finance ISAs. The change forms part of new rules published by HM Revenue and Customs on 23 June 2026.
These rules support the cash ISA reforms announced at the 2025 Autumn Budget and are intended to stop people using investment ISAs in a way that effectively gets around the lower cash ISA limit due to start in April 2027.
The 22% charge is one of three changes confirmed by HMRC. The government will also stop savers under 65 from transferring money from non-cash ISAs into cash ISAs and prevent ISAs from being held entirely in money market funds.
In simple terms, the rules are designed to close off routes where an investment ISA could be used mainly as a home for cash, or cash-like investments.
Why the rules are being introduced
From April 2027, savers under 65 will be able to put up to £12,000 a year into cash ISAs, rather than the current £20,000 limit.
The overall ISA allowance will stay at £20,000, so savers who want to use the full allowance will need to place at least £8,000 into a Stocks and Shares ISA or another type of non-cash ISA. Savers aged 65 and over will keep the full £20,000 cash ISA allowance.
The government has described the reforms as part of a wider aim to encourage more people to consider investing, rather than holding larger sums in cash alone.
Without these extra rules, someone could potentially keep cash, or cash-like money market funds, inside a Stocks and Shares ISA and continue much as before. That would make the lower cash ISA limit less effective in practice.
The new charge, transfer restriction and money market fund rule are intended to prevent that kind of workaround.
What is still to be confirmed
HMRC has said more detail will follow in its next Tax-Free Savings newsletter.
Some practical points are still unclear, including exactly how the 22% charge will be collected and reported, and how “cash holdings” will be defined for the purposes of the charge. The final detail on the money market fund restriction is also still to come.
Importantly, money already held in a cash ISA is not affected. The lower limit and related rules will apply to new ISA subscriptions from April 2027, not to existing balances, which remain sheltered within the ISA rules.
What it means for savers
For savers under 65 who have used cash ISAs to shelter larger balances, the changes may reduce the amount that can be added to cash ISAs each year from April 2027. The new rules also mean the most obvious workaround, holding cash inside an investment ISA instead, is unlikely to be available.
Savers aged 65 and over are not affected by the lower cash ISA limit. For everyone else, there is still time to consider what the changes may mean, and the right approach will depend on your goals, time frame, tax position and attitude to investment risk.
If you are unsure how these changes could affect your savings, we’re here to help you think it through – get in touch today.
Sources & further reading
ISA reform 2027: anti-circumvention rules factsheet – GOV.UK
Tax-free savings newsletter 22 – June 2026 – GOV.UK
Cash held in stocks and shares ISAs to be hit with 22% charge on interest
Tax on cash but money market funds spared in ISA rule change
FAQs
What is changing from April 2027?
From 6 April 2027, savers under 65 will only be able to put up to £12,000 a year into cash ISAs. The overall ISA allowance remains £20,000, so the remaining allowance can still be used in non-cash ISAs, such as Stocks and Shares ISAs.
Who is affected by the lower cash ISA limit?
The lower cash ISA limit applies to savers under 65. Savers aged 65 and over will continue to have a £20,000 cash ISA allowance from the start of the tax year in which they turn 65.
Will existing cash ISA savings be affected?
No. The changes apply to new subscriptions from April 2027. Existing cash ISA balances remain sheltered under the ISA rules.
What is the 22% charge?
A flat-rate charge of 22% will apply to interest, or certain alternative finance returns, paid on cash held inside non-cash ISAs such as Stocks and Shares ISAs and Innovative Finance ISAs. ISA managers will pay the charge to HMRC, so individuals will not need to report this interest separately to HMRC.
Can I still hold cash in a Stocks and Shares ISA?
Yes, but from April 2027 interest paid on that cash will be subject to the 22% charge. The rules are designed to discourage using an investment ISA as a long-term cash savings account.
What about money market funds?
Money market funds can still be held within non-cash ISAs as part of a wider investment mix. However, an ISA portfolio made up entirely of money market funds can be held but will be subject to the charge under the new rules.
Can I transfer money from a Stocks and Shares ISA into a cash ISA?
From April 2027, savers under 65 will not be able to transfer money from non-cash ISAs into cash ISAs. Transfers from cash ISAs into non-cash ISAs will still be allowed.
Do I need to change my savings now?
Not necessarily. The rules do not take effect until April 2027, and the right approach depends on your goals, time frame, tax position and attitude to investment risk. If you are unsure, it may be worth speaking to your adviser before making changes.
Disclaimer: information is based on publicly available data and government announcements at the time of writing (August 2026) and may be subject to change. This article is for information only and does not constitute advice. The value of your investments can go down as well as up, so you could get back less than you invested.