On 23 June 2026, HMRC published its long-awaited anti-circumvention rules as part of a wider package of ISA reforms and the headline measure is a new 22% flat-rate charge on cash interest earned within Stocks & Shares ISAs and Innovative Finance ISAs. This marks a significant change for savers.
The measure targets interest paid on cash balances within investment ISAs rather than affecting the tax-free wrapper for capital gains and dividends.
The package of ISA-related reforms announced by the government is aimed at simplifying and updating the individual savings account regime. These changes are intended to close perceived tax advantages, align treatment across different ISA types, and modernise administrative rules.
Why the 22% charge has been announced:
In the Autumn Budget 2025, the Chancellor announced that the annual Cash ISA allowance for savers under 65 would be reduced from £20,000 to £12,000 from April 2027. The stated aim was to nudge British savers away from holding cash and towards investing in the UK’s equity markets.
But this raised a question: what would stop savers simply keeping large cash buffers inside their Stocks & Shares ISAs instead; effectively sidestepping the lower Cash ISA cap? The 23 June announcement is the government’s answer to this.
Policy-makers argue the measure will level the playing field between savings held in easy-access cash ISAs and cash held inside investment ISAs, where the tax-free wrapper previously offered an implicit advantage for interest income on cash.
What exactly has changed?
From April 2027, any interest earned on cash held within a non-cash ISA (i.e. a Stocks & Shares ISA or Innovative Finance ISA) will be subject to a flat 22% charge. Crucially, this rate applies universally, regardless of whether the account holder is a basic rate, higher rate, or even a non-taxpaying saver.
It is designed not as a revenue-raising measure, but as a deliberate disincentive to holding uninvested cash within investment wrappers.
Two further rules reinforce this intent:
- No transfers from non-cash ISAs to Cash ISAs for the under-65s. Once money is held in a Stocks & Shares or Innovative Finance ISA, savers under the age of 65 will no longer be able to transfer it across into a Cash ISA. Transfers in the other direction; from Cash ISA to Stocks & Shares ISA, will still be permitted.
- Money Market Funds (MMFs) cannot make up 100% of a non-cash ISA. Portfolios held entirely in MMFs, which behave similarly to cash, will be classified as non-qualifying investments. Holding some MMFs within a diversified portfolio is still permitted, but using them as a wholesale substitute for cash is not.
The government has been clear that this is about building a retail investment culture and directing more capital into the domestic economy. Savers who want tax-free interest on cash should use a Cash ISA; the Stocks & Shares ISA is intended for investing.
Other ISA reforms announced on 23 June
The 22% charge was not the only ISA development in the June tax update. Several other changes were confirmed or consulted upon:
A new first-time buyer ISA
Following its announcement at the Autumn Budget 2025, the government has now published a formal consultation on a new First-Time Buyer ISA, which will eventually replace the Lifetime ISA (LISA).
Like its predecessor, the new product will pay a government bonus on savings earmarked for a first home purchase. However, it is intended to be simpler in design and will remove the 25% exit penalty that has frustrated LISA holders who find they cannot or do not use the funds for a property purchase.
Savers can continue to open and contribute to a Lifetime ISA under the existing rules until the new product launches. The consultation closes on 17 August 2026.
Confirming the Cash ISA Allowance Reduction
While not new information, the June update formally confirmed the anti-circumvention architecture that underpins the Autumn Budget 2025 decision: from April 2027, under-65s will have a £12,000 annual Cash ISA allowance, while the allowance for Stocks & Shares ISAs and Innovative Finance ISAs will remain at £20,000. Savers aged 65 and over retain a £20,000 Cash ISA allowance.
The 2026/27 tax year is therefore the last in which under-65s can put the full £20,000 into a Cash ISA.
Further details will be published in the next HMRC Tax Free Savings newsletter, and the technical rules are subject to consultation before taking effect in April 2027.
What Should Savers Do Now?
The current 2026/27 tax year remains unaffected. If you are considering your ISA strategy, now is a sensible time to:
- Review where your cash is held. If you have significant uninvested cash sitting in a Stocks & Shares ISA, the clock is ticking on its tax-free status.
- Consider maximising your Cash ISA contribution this year if you are an under-65 saver who relies on cash savings, as the current £20,000 limit will not be available from next April.
- Seek independent financial advice if you are unsure how the new rules apply to your personal circumstances, particularly if you hold a Lifetime ISA and are watching the First-Time Buyer ISA consultation with interest.
This blog post is for informational purposes only and does not constitute financial or tax advice. Please consult a qualified financial adviser for guidance specific to your situation.
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