22% tax on cash interest in Stocks & Shares ISAs from 2027

The UK government is introducing changes to ISA rules that will apply a 22% tax charge on interest earned from uninvested cash held within Stocks & Shares ISAs, starting from April 2027.

The change is aimed at reducing the use of investment ISAs as cash-holding accounts, where funds are not invested in markets but still benefit from tax-advantaged treatment. Under the updated rules, only interest generated on cash balances inside Stocks & Shares ISAs will be affected, while the tax-free status of actual investments will remain unchanged.

The reform is part of a wider effort to encourage more long-term investing through ISA products and to align tax advantages more closely with invested capital rather than idle cash balances.

In practice, this means:

• A 22% charge will apply to interest earned on cash held within Stocks & Shares ISAs
• Cash ISAs are not affected by the change
• Returns from investments such as shares, funds, and bonds remain fully tax-free within ISAs
• The policy is intended to discourage holding large cash balances inside investment ISAs
• Further operational details are expected in upcoming HMRC guidance

For investors and firms, the key question will be how providers implement the new rules and how clients choose to structure cash holdings across different ISA types ahead of 2027.

If you want to understand how this could affect your portfolio, get in touch with our team to discuss the implications in more detail.