HMRC will tax cash interest held inside stocks and shares Isas at 22% from April 2027, sharpening Reeves ISA tax changes that were first signalled in last year’s budget. The move narrows a gap investors have used to keep cash inside an investment wrapper while still earning interest.
Under-65 savers will also face a £12,000 a year cash Isa limit from April 2027, down from the current £20,000 annual Isa allowance. Anyone who has been using stocks and shares Isas as a parking place for cash will have to check whether their provider’s cash holdings still fit the new rules.
Rachel Reeves and HMRC
Rachel Reeves announced major changes to the Isa regime in last year’s budget, and HM Revenue and Customs moved on Tuesday to set out how one part of that overhaul will work. The tax authority said interest on cash savings held in a stocks and shares wrapper will be taxed at 22%, while investors will be restricted to holding less than 100% of their stocks and shares Isa in money market funds.
The practical effect is blunt: cash sitting inside a stocks and shares Isa will no longer receive the same treatment as the investments around it. Providers that have let customers keep large cash balances alongside shares and funds now have a rule change to work around, rather than a loose administrative practice.
Rachael Griffin on first-time buyer Isa
The Treasury launched a consultation on a new first-time buyer Isa on Tuesday, replacing the Lifetime Isa idea with a product open to anyone over 18 and carrying a 25% government bonus. The bonus will be paid only when a property is bought, and the new account will no longer carry a 25% penalty if the money is withdrawn for another reason.
Rachael Griffin, a tax and financial planning expert at Quilter, said the proposal “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 added: “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.”
£450,000 cap and saver choices
The unresolved point is the unchanged £450,000 property price cap attached to the first-home saving plan, which critics say still does not match the market the Treasury says it is trying to address. The Treasury says the new first-time buyer Isa recognises “that the age at which a first home is bought is rising”, but the cap leaves the product’s reach narrow for anyone saving for a more expensive property.
Rachel Vahey, head of public policy at AJ Bell, said: “Rather than minimise friction between saving and investing, these reforms” — a warning that the new structure may push savers to split cash and investments more carefully. For now, the immediate choice for affected savers is whether to keep cash inside stocks and shares Isas, move it into a cash Isa before the new cap bites, or use the new first-time buyer Isa once the Treasury finishes the consultation path.
