This week, HM Revenue and Customs (HMRC) released the long-awaited details of Britain’s ISA reform measures that were announced in the 2025 Autumn Budget. A set of new “core measures” – which are set to take effect from April 2027 – have been designed to encourage more savers in the UK to start investing.
As always with these announcements, the devil is in the detail. In this article, we cover what savers and investors need to know, and what they should be considering for their ISA strategies moving forward.
What ISA rules changes have been announced?
ISA allowances changes
Back in November last year, Chancellor Rachel Reeves revealed in the Autumn Budget that the annual Cash ISA allowance will be cut from £20,000 to £12,000 for those under age 65, while the overall ISA allowance will remain at £20,000. Older savers will retain the full £20,000 annual ISA cash allowance.
For other ISA types such as Junior ISAs, innovative finance ISAs and Lifetime ISAs, allowances and rules remain unchanged.
Stocks and Shares ISA changes
This week, HMRC confirmed a set of core measures. The main talking point is the introduction of an “ISA tax” in which it will impose a flat rate charge on interest on cash held in Stocks & Shares ISA at 22% - effectively aligning with the basic rate of tax on savings from next tax year (2027/28). Investments in an ISA such as shares, bonds, funds, investment trusts and ETFs will remain tax free so they’re not subject to income tax or capital gains tax.
The 22% charge is set to apply regardless of income tax status – basic rate, higher rate, additional rate or non-taxpayer – and it appears that any interest earned in a Stocks & Shares ISA will not count towards the income tax personal allowance or personal savings allowance. Please note, Charles Stanley is not a tax adviser.
Rules on cash-like investments held in Stocks & Shares ISAs
It has also been confirmed that non-cash ISAs cannot be 100% invested in “cash-like” assets, which is defined specifically as money market funds. However, you can still hold these funds as part of a broader portfolio, as long as they do not make up 100% of your investments.
HMRC recognises that completely banning these assets would disrupt normal investor behaviour, so it has allowed some flexibility within these limits.
Find out more about money market funds
New ISA transfer rules
From 6 April 2027, there will be restrictions in place on transfers into Cash ISAs from non-Cash ISAs products like Stocks & Shares ISAs. However, it will remain possible to transfer from a Cash ISA to a non-Cash ISA, and transfers of Stocks & Shares ISAs to Cash ISAs will be permitted from 65. reinstating flexibility at what is often a crucial time of life to reassess financial plans.
A return to a more complex ISA landscape
The proposed introduction of the 22% tax charge on interest is, in some ways, a return to the pre‑2014 framework where interest on cash held within Stocks & Shares ISAs faced a levy of 20%.
The system was swept away by George Osborne’s ISA reforms in July 2014. He introduced a single, more flexible ISA allowance and made all cash returns – regardless of whether they were from interest in a Cash or Stocks & Shares ISA account – fully tax free.
Reintroducing a tax charge on cash within Stocks & Shares ISAs means blurring those lines once again. A product that has long been marketed as straightforward, tax free wrapper will come with a significant caveat, and it remains to be seen how much damage that will do to the clarity and appeal of the ISA ‘brand’.
The reforms aim to nudge savers towards investing rather than holding cash – a laudable aim. However, the suite of “anti‑circumvention” measures risk reversing much of the simplification of ISAs achieved in 2014. Replacing it with a more restrictive and complex landscape could achieve exactly the opposite of what they’re aiming to achieve.
Worried about what this could mean for you?
We know changes like these can create uncertainty. We will continue to monitor developments closely and keep you updated as things progress.
If you’d like to discuss how these changes could impact your financial position, get in touch with one of our financial coaches. They can help you gain insights and understanding of your financial situation so you can move forwards with confidence.
We offer a free, no commitment, 15-minute call with a qualified professional to discuss your needs.
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
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