Chancellor Rachel Reeves is reportedly preparing to impose a 22% tax charge on interest earned within stocks and shares ISAs. This move forms part of the Labour government’s plans to reform Individual Savings Accounts (ISAs), following the earlier announcement that the annual ISA allowance for under-65s will be reduced from £20,000 to £12,000 starting April 2027.
The proposed 22% levy is designed as an “anti-circumvention” measure to prevent savers from exploiting loopholes by shifting cash between different types of ISAs. This new tax rate aligns with the increased savings interest tax rate expected to take effect in April 2027. However, the Treasury has yet to provide specific details on how this charge will be implemented.
Rachel Vahey from investment platform AJ Bell commented on the timeline, stating, “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. We need clarity from the Treasury as soon as possible.”
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Rob Morgan, chief investment analyst at Charles Stanley Direct, explained the broader impact: “From April 2027, the annual cash ISA allowance will be cut to £12,000 for those under 65, while the total ISA allowance remains at £20,000. Older savers will keep the full £20,000 cash allowance. Alongside this, the Chancellor plans to introduce a 22% charge on interest earned on cash held within stocks and shares ISAs, matching the basic rate of tax on savings for the 2027/28 tax year.”
He added that while the reforms aim to encourage savers to invest rather than hold cash — a commendable goal — the new “anti-circumvention” rules may complicate what was once a simpler ISA landscape, potentially reversing some of the simplifications introduced in 2014.
The Treasury has previously stated their intention to reform cash ISAs to encourage more investment in stocks and shares, which historically yield better returns than cash savings, while maintaining the overall £20,000 tax-free limit.