HMRC ISA Reform: Proposed 22% Charge on Cash Interest Explained

HM Revenue & Customs (HMRC) has announced proposed changes as part of wider ISA reforms due to take effect from April 2027, which could significantly affect how cash held within investment ISAs is treated.

Under the current proposals, a 22% tax charge may apply to interest earned on cash balances held inside Stocks & Shares ISAs and similar investment-based ISA products. This measure is aimed at addressing what could be seen as the use of investment ISAs as a “cash shelter”, where funds are held in cash rather than being invested in qualifying assets.

The intention behind the reform is to reduce the advantage of holding large cash balances within investment ISAs, particularly where those balances generate interest in a similar way to a traditional savings account. At the same time, the overall ISA structure remains in place, with the £20,000 annual ISA allowance unchanged, although the Cash ISA allowance for those under 65 is expected to be capped at £12,000.

It is important to note that the proposed charge does not apply to investment growth such as dividends, capital gains, or returns from funds, shares, or ETFs. It is specifically targeted at cash held within investment ISA wrappers.

If implemented, providers may change how they handle uninvested cash within ISA accounts, potentially limiting interest payments or adjusting account structures to ensure compliance. Investors may therefore wish to review how much cash they hold within investment ISAs once the final rules are confirmed.

These proposals are still subject to final legislation and could be amended before implementation in 2027.

Further reading:

https://www.gov.uk/government/publications/fiscal-events-2026-factsheets/isa-reform-2027-anti-circumvention-rules-factsheet