LONDON, July 3, 2026, 17:04 (BST)
- Starting April 6, 2027, HMRC is set to impose a 22% charge on interest from cash sitting in stocks and shares and innovative finance ISAs. The cash ISA cap for those under 65 drops to £12,000.
- Cash made up 66.2% of adult ISA subscriptions in 2023-24. Cash subscriptions were up £27.9 billion, compared to just a £3.1 billion increase in stocks and shares ISA subscriptions.
- Money market funds can stay inside non-cash ISAs as part allocations, giving investors a near-cash option that some advisers say could complicate how people use ISAs.
London’s main equities market was already closed at publication time. London Stock Exchange hours are 0800 to 1630 local.
Britain’s new ISA anti-avoidance charge makes savers pick yield over cash. On a 3.75% return, the 22% tax slices 82.5 basis points off income—so £82.50 a year lost on every £10,000 kept as cash in a stocks and shares ISA. Interactive investor puts 3.75% as a standard money market fund yield now, with HMRC fixing the charge at 22%.
HMRC said ISA managers are on the hook for the new charge, not savers. The Personal Savings Allowance won’t apply within an ISA. Money market funds are the only assets to count as cash-like, and they’ll be allowed in non-cash ISAs as long as they don’t make up the entire account. The government plans to hold a technical consultation on draft legislation, with rules expected in the autumn.
| Rule from April 6, 2027 | Under 65 | 65 and over |
|---|---|---|
| Total ISA annual limit | £20,000 | £20,000 |
| Cash ISA annual limit | £12,000 | £20,000 |
| Cash interest inside stocks and shares or innovative finance ISA | 22% charge | 22% charge |
| Non-cash ISA invested 100% in money market funds | Not qualifying | Not qualifying |
| Transfer from non-cash ISA to cash ISA | Not allowed | Can move funds from the tax year the saver turns 65 |
The key issue is the money moving in. HMRC said there were about 15 million adult ISA subscriptions in 2023-24, up from 12.4 million the year before. Cash took 66.2% of those. Cash ISA subscriptions jumped 67%, or £27.9 billion. Stocks and shares ISA subscriptions went up 10.9%, or £3.1 billion. By the end of 2023-24, adult ISA assets totaled £872 billion, with cash at 41.3% and stocks and shares at 58.6%.
The policy narrows the £8,000 difference between the new £12,000 cash cap for under-65s and the £20,000 overall ISA limit. Investors can still keep cash in investment ISAs, but interest gets taxed. The rule does not count individual shares, funds, investment trusts, ETFs, corporate bonds or UK gilts as cash-like assets.
| Example: £20,000 held at 3.75% | Gross annual income | 22% charge | Net annual income | Effective rate |
|---|---|---|---|---|
| Cash in a non-cash ISA | £750.00 | £165.00 | £585.00 | 2.93% |
| £12,000 in cash ISA, £8,000 cash held outside | £750.00 | £66.00 | £684.00 | 3.42% |
| Money market fund inside non-cash ISA (partial account) | £750.00 before fees | £0.00 charge to cash interest | £750.00 before fees | 3.75% before fees |
| Cash ISA for saver 65 or older | £750.00 | £0.00 | £750.00 | 3.75% |
Craig Rickman, personal finance editor at interactive investor, which is owned by abrdn (LON:ABDN), says there are “several complications” and described part of the system as a “confusing mess”. Rickman said the regime could lead to tax being paid on money inside an ISA, when the same earnings outside an ISA could stay under the Personal Savings Allowance. Interactive Investor
Rickman showed how the draft rules could work in practice. An under-65 saver could use £12,000 of cash ISA allowance, keep £7,900 in money market funds within a stocks and shares ISA, and put £100 into a UK equity fund. Right now, the 22% charge wouldn’t hit income from the money market fund.
Rachel Vahey, who heads public policy at AJ Bell (LON:AJB), said the rules are “increasingly complex”. According to her, a fund split with 99% in money markets and 1% in UK equities is permitted, but a portfolio with an even split between cash and money market funds would fail the tests. MoneyWeek
Martin Lewis, who started and chairs MoneySavingExpert.com, said the charge is a “very blunt tool”. He said investors who sell funds or shares in an ISA could end up owing tax on interest if they leave the proceeds in cash. He said money market funds could be the closest workaround. Moneysavingexpert
James Carter, who heads platform policy at Fidelity International, said he was glad money market funds are still eligible, calling them “genuine investment products”. Greg Davies, head of behavioural finance at Oxford Risk, said the tax hit and transfer blocks give the “wrong behavioural signal”. Jason Hollands, managing director of Bestinvest, described the anti-circumvention plan as a “disproportionate response” and said investors will have to weigh money market fund returns after fees against cash returns after the 22% levy. MoneyWeek
The June 23 tax package included a proposal to roll out a first-time buyer ISA to take over from the Lifetime ISA. Once the new ISA is launched, it will be the option offered instead of the Lifetime ISA. Savers with a Lifetime ISA now will still be able to use their accounts as usual.
Investment Week said wealth experts think HMRC’s ISA cash restrictions will probably put people off investing because of the new rules and mixed incentives. The Treasury Committee made the same case last year, arguing that lowering the cash ISA cap wouldn’t push much money into stocks.
Source note: The Telegraph link was behind a paywall, so facts from it weren’t used unless another source confirmed them.
