Reviewed by Daniel Boden CFPTM FPFS, Chartered Independent Financial Planner at Abode Financial Planning
If you have built up ISA savings, you may have seen headlines about new ISA rules from April 2027 and a 22% charge on cash interest.
The important part is understanding what that 22% applies to, because the rule is much narrower than some headlines suggest.
Stocks and Shares ISAs are not becoming taxable generally. The new tax charge applies to interest earned on cash sitting inside a Stocks and Shares ISA or Innovative Finance ISA.
For people approaching retirement in Cirencester and across the Cotswolds, that distinction matters. An ISA may form part of a much wider retirement plan alongside pensions, bank savings and other investments. A change affecting a small cash balance can look very different when you see the full picture.
At a glance
- From April 2027, the Cash ISA limit will be £12,000 for people under 65 and £20,000 for those aged 65 and over. The overall ISA allowance will remain £20,000.
- A 22% charge will apply to interest earned on cash held inside Stocks and Shares ISAs and Innovative Finance ISAs.
- The charge applies to the interest, not the cash balance or the total value of your ISA.
- Your ISA provider will deal with the payment to HMRC.
- Shares, investment funds, ETFs, investment trusts, corporate bonds and government bonds such as gilts are not subject to this cash interest charge.
HMRC confirmed the planned changes in its September 2026 policy paper but the regulations come into force on 6 April 2027.
What is changing to Cash ISAs from April 2027?
The overall annual ISA allowance will stay at £20,000.
What changes is the amount someone under 65 can pay into a Cash ISA each tax year.
From 6 April 2027, that limit will be £12,000. If you are aged 65 or over, the Cash ISA limit will remain £20,000.
This is an annual limit on new money going into a Cash ISA. It does not mean an existing Cash ISA worth £50,000, £100,000 or more needs to be reduced to £12,000.
HMRC’s latest policy paper explains the change and who it applies to. Read the government guidance.
What is the 22% charge on Stocks and Shares ISA cash?
You can hold cash inside a Stocks and Shares ISA.That may happen because money has just been added and is waiting to be invested. Cash may also be kept aside for fees, withdrawals or upcoming investment transactions.
From April 2027, interest paid on that cash will face a 22% charge.The ISA provider will deal with the payment to HMRC, so you will not need to declare the interest yourself.
The Personal Savings Allowance will not apply to this interest.
HMRC explains these rules in its ISA reform factsheet.
Here is the key point.
The 22% applies to the interest earned on the cash. It does not apply to the cash itself.
If £10,000 sits in cash and earns £400 of interest, the charge would be £88 (22% of £400).It would not be £2,200 (22% of £10,000).
Which investments are affected?
The 22% charge applies to interest earned on cash held inside a Stocks and Shares ISA or Innovative Finance ISA. Shares, investment funds, ETFs, investment trusts, corporate bonds and gilts are not subject to this cash interest charge.
Money market funds can still form part of a portfolio, but under the new rules a Stocks and Shares ISA cannot be made up entirely of them
HMRC specifically lists shares, funds, investment trusts, ETFs, corporate bonds and government bonds such as gilts as investments that are not treated as cash under these rules. See HMRC’s full explanation.
What if cash is only there for a few days?
This is a normal part of investing.
Suppose £20,000 arrives in your Stocks and Shares ISA and sits in cash for 14 days before being invested.
If the cash earns 4% interest a year, purely as an example:
£20,000 × 4% × 14 ÷ 365 = about £30.68 of interest
A 22% charge on that interest would be:
about £6.75
You would still receive around £23.93 of interest.
The exact figure will depend on the interest rate your platform pays and how long the money stays in cash.
This helps put the percentage into context. A 22% charge may sound large, but the pounds involved can be small when the cash balance is modest or held for a short time.
What does this mean for Abode Financial Planning clients?
The investment portfolios we use at Abode Financial Planning typically hold no more than around 2% in cash.
That cash has a job. It may help cover fees, planned withdrawals or investment transactions.
The platforms we use also pay interest on cash balances.
Using a 4% interest rate simply to show how the figures work:
| ISA value | Cash at 2% | Annual interest at 4% | 22% charge |
|---|---|---|---|
|
£100,000 |
£2,000 |
£80 |
£17.60 |
|
£500,000 |
£10,000 |
£400 |
£88 |
|
£1,000,000 |
£20,000 |
£800 |
£176 |
Frequently asked questions
The government is reducing the Cash ISA limit for people under 65 to £12,000 while keeping the overall ISA allowance at £20,000.
Without extra rules, someone could place the full £20,000 into a Stocks and Shares ISA and simply leave the money as cash.
The Government says that the new rules are designed to prevent that and support the government’s aim of encouraging more long-term investment.
HMRC also plans restrictions around transfers into Cash ISAs and portfolios made up entirely of money market funds.
You can read the proposed detail in HMRC’s draft ISA regulations.
For many long-term investors, the first step is simply to check how much cash is sitting inside the ISA and why it is there. A small balance may be there for a good reason.
A large amount that has been sitting in cash for months or years deserves a closer look, especially if retirement is getting closer.
This is where the wider financial plan matters.
You may have several pensions, Cash ISAs, Stocks and Shares ISAs and money in the bank. Each part should support what you want your money to do over the next five, ten or twenty years.
No.
The new charge relates to interest earned on cash inside certain ISAs.
Normal investment growth inside a Stocks and Shares ISA is not being brought into this 22% charge.
People aged 65 and over will keep the £20,000 Cash ISA limit.
HMRC says the higher limit will apply from the start of the tax year in which you turn 65.
The 22% charge on interest earned on cash inside a Stocks and Shares ISA will still apply.
No.
HMRC has confirmed that the Personal Savings Allowance will not apply to this interest.
Your ISA provider will deal with the charge, rather than you having to report the interest yourself.
There is no need to make changes simply because you have seen the figure of 22%.
Start with the amount of cash you hold.
Then ask why it is there.
If you are approaching retirement, it can also be a good opportunity to look at how your ISAs, pensions and cash savings work together.
The more important question is whether your money is arranged in a way that supports the retirement you want.
ISA and retirement planning in Cirencester and the Cotswolds
Many of the people we work with in Cirencester and across the Cotswolds have built up savings in several places over the years.
There may be old workplace pensions, personal pensions, Stocks and Shares ISAs, Cash ISAs and money sitting in bank accounts.
Bringing those pieces together makes retirement planning much easier to understand.
At Abode Financial Planning, we help people in their 50s and 60s see how their pensions, ISAs and investments fit together, how much cash they may need and how their savings can support the life they want after work.
If you are unsure how the April 2027 ISA changes affect you, or you would like us to review your ISAs, pensions and wider retirement plan, speak to Abode Financial Planning.
This article is for general information only and does not constitute personal financial advice. Tax treatment depends on individual circumstances and may change in future. Investments can fall as well as rise in value, and you may get back less than you invest.
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