The government has set out further detail on its reform of Individual Savings Accounts (ISAs), and two developments have attracted particular attention this week. Here is a short summary of what has changed, and what remains under discussion.
At a glance
➔ 22% charge on interest earned on uninvested cash held within Stocks & Shares ISAs from April 2027.
➔ No change to the tax treatment of investments held within the ISA wrapper.
➔ Cash ISA allowance for under 65s reduces to £12,000 from April 2027.
➔ Transfers from Stocks & Shares ISAs to Cash ISAs for under-65s will no longer be permitted.
➔ A new First Time Buyer ISA is under consultation to replace the Lifetime ISA.
➔ No immediate action is required.
What’s changing?
The Treasury has confirmed that, from April 2027, a 22% charge will apply to interest earned on cash held within Stocks & Shares ISAs (and Innovative Finance ISAs).
What this means
The charge applies only to interest on uninvested cash.
Investments themselves are unaffected.
Shares, funds, investment trusts, exchange-traded funds and bonds — including gilts — continue to enjoy their usual tax treatment within the ISA wrapper.
An example
Assuming an investor with £500,000 in their Stocks & Shares ISA has 2% (£10,000) allocated to cash and the prevailing interest rate is 3.7%:
Cash held: £10,000
Interest earned: £370
Tax at 22% : £81.40
Related ISA changes
The measure sits alongside reforms announced at the Autumn Budget 2025, under which the annual Cash ISA allowance for those under 65 will reduce to £12,000 from April 2027, while the overall £20,000 ISA allowance remains unchanged. Those aged 65 and over keep their full £20,000 Cash ISA allowance.
The new charge is designed to discourage savers from using a Stocks & Shares ISA simply to hold cash and sidestep the lower limit.
In addition:
The overall ISA allowance remains £20,000.
Those aged 65 and over retain the full £20,000 Cash ISA allowance.
Transfers from Stocks & Shares ISAs into Cash ISAs for under 65s will be banned from the start of the next tax year.
Transfers from Cash ISAs into Stocks & Shares ISAs will still be permitted.
First Time Buyer ISA: What we know so far
The government has launched a consultation on a new, simpler First Time Buyer ISA, intended to replace the Lifetime ISA once it is available.
The proposals include
Removing the withdrawal penalty.
Scrapping the upper age limit.
Paying the government bonus when a first home is purchased, rather than up front.
Importantly, existing Lifetime ISAs would remain open and continue as normal.
As this is still at the consultation stage, the final design, the property price cap, and the launch date are not yet settled.
What this means for you
These changes raise sensible questions, and the right response will always depend on your own circumstances and plans.
There is nothing you need to do today.
We will review the implications with you as part of your annual Wealth Plan meeting. In the meantime, if you have any questions, please do get in touch — we are always glad to talk things through.
Risk warnings
This article is intended for general guidance only and should not be considered financial, tax or legal advice.
The information is based on government announcements and proposals available at the time of writing. Some of the measures discussed remain subject to consultation and may change before they are implemented.
Tax treatment depends on individual circumstances and may change in the future.
The value of investments can fall as well as rise, and you may receive back less than you originally invested.
Before taking any action in relation to your ISA or wider financial planning, you should seek professional advice appropriate to your individual circumstances.
Wells Gibson Limited is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 731027).
