A recent update reveals that starting next year, a new fee will be imposed on the interest accrued from holding cash in stocks and shares Individual Savings Accounts (ISAs). This measure aims to prevent savers from circumventing the reduced cash ISA limit, which will decrease from £20,000 to £12,000 for individuals under 65 as of April 2027. However, individuals aged 65 and above will retain the £20,000 cash ISA allowance.
Under-65s will still have an overall £20,000 ISA limit, allowing them to potentially invest £12,000 in a cash ISA and allocate the remaining £8,000 to another type of ISA. The government emphasizes that these changes are intended to promote investment, maintaining the £20,000 limit for other ISAs like stocks and shares ISAs and innovative finance ISAs.
Moreover, a new factsheet on the HMRC website confirms a 22% charge on interest earned from cash holdings in stocks and shares ISAs. Additionally, savers will no longer be permitted to have their entire non-cash ISA portfolio in Money Market Funds, which are akin to cash assets investing in short-term debt securities. The regulations also prohibit individuals from transferring £20,000 to a non-cash ISA and subsequently moving those funds to a cash ISA.
HMRC announced that a technical consultation with the industry regarding the draft legislation will commence soon, with regulations scheduled for implementation in the fall. While some industry experts express concerns about the impact of these changes on consumer investment behavior, others stress the importance of providing clear information to savers and building a robust investment culture in the UK.