Savers may find a way to sidestep restrictions on cash in ISAs by utilizing a 1p loophole.
Starting April 2027, the cash ISA limit for individuals under 65 will decrease from £20,000 to £12,000. Nonetheless, the overall ISA allowance for this age group will remain at £20,000, allowing savers to allocate £12,000 to a cash ISA and £8,000 to a stocks and shares ISA.
Alternatively, individuals can invest the entire £20,000 allowance in stocks and shares to promote investment and boost economic activity. Those over 65 will still have the option to save up to £20,000 in a cash ISA.
Reports indicated that savers might face a 22% charge on interest earned from cash held in stocks and shares ISAs starting April 2027. However, the Telegraph revealed that this charge would only apply if 100% of investable assets are in “cash-like” investments, including money market funds.
In theory, one could invest £12,000 in a cash ISA, £7,999.99 in cash within a stocks and shares ISA, and the remaining 1p in the stock market.
HMRC previously mentioned that individuals holding cash in stocks and shares accounts would incur a charge on interest from that date but had not confirmed the rate.
A Treasury spokesperson emphasized the aim of reforming the cash ISA to encourage more investment in stocks and shares, noting that the changes would benefit savers without requiring them to transfer existing savings from their Cash ISA.
The Mirror has reached out to the Treasury for an updated statement.
Apart from the reduced cash ISA rate, it has been disclosed that the tax rate on savings interest from other accounts will increase from April 2027. Basic-rate taxpayers will face a 22% tax on savings interest exceeding £1,000 annually, up from the current 20%. Higher-rate taxpayers and additional rate taxpayers will also see their tax rates on savings interest rise accordingly.
ISAs encompass various types such as cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs, with children having Junior ISAs. Some ISAs have lower annual limits, like the £4,000 cap on contributions to a Lifetime ISA each tax year.
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