HMRC said on Tuesday that cash interest held inside stocks and shares ISAs will be taxed at 22% from April 2027, as part of Rachel Reeves ISA changes that also tighten the cash Isa limit for under-65s. The rules are designed to stop savers using stocks and shares ISAs to move cash outside the new cap. For readers holding cash in these accounts, the main change is that the tax-free treatment will no longer apply to that cash balance.
HMRC and Rachel Reeves
From April 2027, under-65s will only be able to put up to £12,000 a year in a cash Isa, compared with the current £20,000 annual Isa allowance. HMRC also said providers of stocks and shares ISAs have previously allowed customers to keep money in cash alongside investments, which is why the new 22% tax rate is being applied to that cash interest.
The restriction also reaches money market funds. Investors will be limited to holding less than 100% of their stocks and shares Isa in those funds, which sit close to cash in how they are used and what they return.
Treasury first-time buyer Isa
The Treasury launched a consultation on a new first-time buyer Isa on Tuesday. It will be available to anyone aged over 18, and it will offer a government bonus of 25% of the sum saved, paid only when a property is bought. The Treasury said the new product recognises that "the age at which a first home is bought is rising".
Rachel Reeves announced major Isa changes in last year’s budget, including the end of the Lifetime Isa. That product had an upper age limit of 40 for new savers, and the new first-time buyer Isa is meant to replace that path for younger savers as the rules change again.
Quilter and AJ Bell
Rachael Griffin, a tax and financial planning expert at Quilter, said the new first-time buyer Isa "marks a clear step towards creating a savings product that better reflects the realities facing aspiring homeowners, but there are issues still to be ironed out". She also said: "Unfortunately, this does not appear to have been addressed within the new product as yet, and [the Treasury] even goes as far as suggesting that the existing cap is suitable." Her criticism focused on the unchanged £450,000 cap.
Rachel Vahey, AJ Bell’s head of public policy, said: "Rather than minimise friction between saving and investing, these reforms". With the cash limit due to start in April 2027 and the consultation still open on the first-time buyer Isa, the immediate choice for savers is whether to keep cash inside stocks and shares ISAs or shift it before the new tax treatment begins.
The practical change for affected savers is direct: cash balances inside stocks and shares ISAs will no longer sit outside tax, and providers will have to separate that cash from the rest of the investment wrapper when the rules take effect. The new framework also leaves one issue in view for buyers saving for a first home — whether the new Isa rules will make the £450,000 cap any easier to live with.
