ISAs are facing a major reform, with the annual cash ISA limit for under-65s being slashed from £20,000 to £12,000
Rachel Reeves is set to introduce a new charge on interest earned from cash held in stocks and shares ISAs, it has been reported.
ISAs are facing a major reform in April 2027, with the annual cash ISA limit for under-65s being slashed from £20,000 to £12,000.
There will still be an overall £20,000 ISA allowance for under-65s – so for example, you could save £12,000 into a cash ISA and £8,000 into a stocks and shares ISA.
You could also save your entire £20,000 allowance into stocks and shares. The idea behind the change is to encourage more people to invest and stimulate economic growth. Over-65s will still be able to save up to £20,000 into a cash ISA.
The shake-up was confirmed in the Budget last year, but a new report by the Telegraph this weekend suggests people will face a 22% charge on interest earned from cash held in stocks and shares ISAs from April 2027.
HMRC had previously said that anyone holding cash in stocks and shares accounts from this date would face a charge on interest, but had not confirmed the rate.
Rachel Vahey, of investment platform AJ Bell, told the newspaper: “This really does need resolving if the Treasury wants to keep to the timeline of April 2027. It leaves us with very little time to make changes.”
A Treasury spokesman told the Mirror: “We are reforming the cash Isa to encourage more people to invest in stocks and shares – which have historically performed better than cash savings – and we have retained the generous £20,000 tax-free limit.
“These changes will make people better off and will not require anyone to move existing savings from their Cash ISA.
“The vast majority of savers will continue to pay no tax on their savings and HMT and HMRC are working at pace with industry on the detailed rules and will update on next steps in due course.”
The main types of ISAs are cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs. Children have their own version called Junior ISAs.
Some ISAs have lower annual limits – for example, you can only save £4,000 into a Lifetime ISA every tax year.
As well as the cash ISA rate being cut, it has been confirmed that the rate of tax paid on savings interest earned in other types of accounts is going to rise from April 2027.
If you’re a basic-rate taxpayer, you pay 20% tax when you earn more than £1,000 a year in savings interest. This will rise to 22%.
Higher-rate taxpayers pay 40% tax when they earn more than £500 in savings interest a year. This will go up to 42%.
Additional rate taxpayers have to pay 45% tax on all their savings interest – this will rise to 47% from April 2027.
You pay tax on the savings interest you earn above these threshold. If you have an ISA, you only start to pay tax above the annual allowance.
