A new ISA rule could trigger 22% tax charges last year
A number of rule changes will be affecting ISA holders next year, with the latest update including a 22% tax on interest earned on cash held in stocks and shares ISAs. This is meant to close a loophole in the Government’s plan to encourage more Brits to invest their money rather than keeping it as cash savings.
However, one expert has warned the increasing number of rule changes could leave Brits confused and missing out, with a potentially bigger risk in store. Kevin Mountford, personal finance expert and co-founder of Raisin UK, said: “Any change to ISA rules risks creating confusion for savers, particularly when many people are already trying to make their money work harder in a higher-tax environment.”
He explained the “key point” that savers need to understand before next April is that cash ISAs are not “suddenly being taxed”. He added: “The key point for consumers is that this does not mean cash ISAs are suddenly being taxed.
“A cash ISA is still designed to let people earn savings interest tax-free, within the usual ISA allowance.”
Rather, what the new update is cracking down on is cash in others ISAs like stocks and shares ISAs. The expert explained: “That could be uninvested money held within an investment account, rather than money held in a dedicated cash ISA.
“Someone using a cash ISA for their savings should not panic, but anyone holding large cash balances inside a stocks and shares ISA may need to check how their provider treats that money from April 2027.
“If people do not understand what type of ISA they have, where their cash is held, or how interest is treated, they could miss out on tax-free savings opportunities.”
Mountford urged savers to check what type of ISA they have and where their cash is actually sitting. If you find you have cash in stocks and shares ISA then he recommended speaking to your ISA provider to find out how the rule changes could affect you.
He said: “For savers, the priority should be to check what type of ISA they have and where any cash is sitting.
“If you are holding cash inside a stocks and shares ISA, particularly for a long period rather than as a short-term step before investing, it may be worth speaking to your provider about how the upcoming rule changes could affect you.”
The expert noted: “With the personal savings allowance unchanged and savings tax rates due to rise from April 2027, more people could find themselves paying tax on interest held outside an ISA.
“Consumers should not feel rushed into investing because of rule changes, but they should take this as a reminder to review their savings, compare rates and make sure they are using tax-free allowances where possible.”