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ISA reform: the 22% charge on cash in non-cash ISAs, effective April 2027

▶ What changed

From 6 April 2027, the government is splitting ISA rules by age and account type. Under-65s will be limited to depositing £12,000 of their annual £20,000 ISA allowance into cash ISAs; over-65s retain the full £20,000 cash capacity. More significantly, cash left sitting uninvested inside a stocks and shares ISA will face a flat 22% charge on any interest and alternative finance returns it generates. Under-65s will also lose the ability to transfer funds from non-cash ISAs back into cash ISAs, closing what the government considers an anti-circumvention loophole.

▶ What this actually means

If you are an expat

You have lived in the UK for a few years — or you are planning to move back — and you have built up ISA savings over time. Some of that money sits in a stocks and shares ISA but has never been invested: it is cash, earning interest inside a wrapper you assumed was fully tax-free. From April 2027, that interest is no longer free. The 22% charge applies at source, meaning HMRC takes it before you see it. If you are returning to the UK and planning to park a lump sum in an ISA while you decide what to do with it, that parking strategy now has a cost attached to it that did not exist before.

If you are a resident

You have a stocks and shares ISA and you have been holding a chunk of it as cash — either waiting for the right moment to invest, or deliberately using it as a tax-free savings account. That is the behaviour this reform targets. The personal savings allowance — the amount of savings interest you can earn tax-free outside an ISA — is £500 for higher-rate taxpayers and £1,000 for basic-rate. If you have large cash balances that already exceed that allowance in taxable accounts, you moved the surplus into an ISA to shelter it. After April 2027, sheltering cash interest in a stocks and shares ISA carries a 22% penalty rate. Cash ISAs remain clean for up to £12,000 per year if you are under 65.

◆ Anita’s take  Tax Saving · Net Worth Protection

The ISA was designed to shelter investments from tax. Using a stocks and shares ISA as a high-interest cash account was technically legal — it just was not what the wrapper was built for. The government has now made that explicit with a number: 22%. What this could change for higher-rate taxpayers is meaningful. If your marginal income tax rate is 40% and your cash interest would otherwise be taxed at 40%, a 22% ISA charge is still a net saving — but only just, and only if the interest generated is large enough to make the maths worth tracking. For basic-rate taxpayers, 22% against a 20% personal savings rate makes the stocks and shares ISA route actively worse than just paying tax normally. The cleaner move for most people is to put investable money into the ISA and keep cash in the cash ISA or a taxable account within the personal savings allowance. What may catch people out is the transition: if you have cash sitting in a stocks and shares ISA right now, you have until April 2027 to reorganise it.

Settel

If your money sits across UK accounts, ISAs and assets in other countries, Settel shows you what it is all actually worth — after tax, after charges, after currency moves. One clear picture, across borders.