The latest ISA update from The Treasury confirms new rules on upcoming Cash ISA reforms, including a flat-rate charge on cash interest.
What ISA reforms were previously announced?
In the Autumn Budget in October 2025, chancellor Rachel Reeves announced a major reform to ISAs, a lower cap on Cash ISA allowance for under 65s. The £20,000 Cash ISA allowance will be available to over 65s, but for those under the allowance will drop to £12,000 from 6th April 2027. There are no changes to the ISA allowance for a Stocks and Shares ISA, the total allowance across all ISAs remains at £20,000 per annum.
New rules – subject to technical consultation
The new rules announced on 23rd June 2026, investors will be charged a flat-rate of 22% on all cash interest received in Stocks & Shares ISAs, regardless of how much cash is held.
If 100% of a Stocks & Shares ISA is held as cash, or cash-equivalent funds, it will be deemed a non-qualifying investment, losing the tax benefits associated with an ISA.
The cash interest loophole
Following this announcement, there was talk of how investors could navigate these rule changes primarily contributing the full £20,000 allowance to a Stocks and Shares ISA but leaving it uninvested, in cash.
HMRC response to the loophole
As such, HM Revenue and Customs have plans to ensure that savers will not try to bypass the announced changes by removing the ability to transfer from Stocks and Shares ISAs to Cash ISAs for under 65s.
There will be a short technical consultation, followed by the final legislation later in the year.
Risk warning:
The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.
Investors should carefully consider their own financial situation and consult with a professional adviser before making any investment decisions.
The Financial Conduct Authority does not regulate tax advice and cash deposits.
FAQS
What investments are considered “cash equivalent funds”?
These are often referred to as “money market funds”, which are low-risk, highly-liquid funds that invest in short-term debt securities.
Can I transfer funds from a Stocks and Shares ISA to a Cash ISA?
The new legislation will remove the ability for under 65s to transfer a Stocks and Shares ISA to a Cash ISA from 6th April 2027 to prevent individuals from circumventing the rules by contributing the higher ISA allowance to Stocks and Shares ISA then transferring to a Cash ISA.
Will over 65s be affected by the ISA changes?
In part, over 65s have a total ISA allowance of £20,000 which they can invest in a Cash ISA or a Stocks and Shares ISA or a combination of both. However, if they choose to invest in a Stocks and Shares ISA they will be subject to a 22% flat-rate charge on cash interest received.
Do I need to declare cash interest to HMRC?
You will not be required to declare any interest paid within your ISA to the HMRC as your ISA provider will pay this charge directly from your ISA.
