Labour’s appetite for new taxes appears to be extending even further into the savings of ordinary Britons.
The Government has confirmed that from April 2027 it will introduce a new 22 per cent charge on interest earned from cash held within Stocks and Shares ISAs and other non-cash ISA products. The move forms part of Chancellor Rachel Reeves’ wider overhaul of the ISA system and has already attracted criticism from savings experts.
The measure follows Labour’s decision to reduce the annual Cash ISA allowance for under-65s from £20,000 to £12,000. While ministers argue the changes are intended to encourage greater investment in shares and other productive assets, critics warn that the reforms amount to another tax grab that penalises prudent savers.
Under the current system, interest earned within ISAs is sheltered from tax. However, from 6 April 2027, cash balances sitting inside Stocks and Shares ISAs or Innovative Finance ISAs will face a 22 per cent charge on any interest generated. Similar treatment will apply to Sharia-compliant financial returns.
The Treasury says the change is necessary to prevent investors using Stocks and Shares ISAs as a substitute for Cash ISAs after the latter’s allowance is cut.
For many investors, however, cash holdings inside a Stocks and Shares ISA are not an attempt to exploit a loophole but a normal part of managing investments. Cash often accumulates temporarily after the sale of shares or funds, or while investors gradually phase money into the market over time.
Financial commentator Martin Lewis described the policy as a “very blunt tool”, warning that it could discourage sensible investment behaviour.
He noted that investors who sell assets within an ISA and temporarily hold the proceeds in cash would suddenly find themselves facing a tax charge on the interest earned. Likewise, those who prefer to drip-feed investments into markets to reduce risk could be disadvantaged.
The Government has confirmed that one notable exception will remain. Money Market Funds, which invest in short-term debt instruments and are commonly used as a low-risk place to hold capital, will not be subject to the new 22 per cent charge. However, investors will no longer be permitted to hold their entire Stocks and Shares ISA portfolio in such funds.
Further restrictions are also being introduced. From April 2027, savers under 65 will no longer be able to transfer money from Stocks and Shares ISAs into Cash ISAs. Transfers in the opposite direction will still be permitted. The restriction will be removed once an individual reaches the tax year in which they turn 65.
Labour has sought to justify the reforms on the basis that younger people should be encouraged to invest rather than hold cash. Yet critics argue that many savers deliberately choose cash because they value security and certainty, particularly during periods of market volatility.
The Government has also clarified that the full £20,000 Cash ISA entitlement will continue to be available for those aged 65 and over, beginning in the tax year in which they reach that age.
Martin Lewis has previously argued that older savers should be protected from any reduction in Cash ISA allowances, noting that retirees are often less able or willing to take investment risks with their savings.
While Labour insists the reforms are designed to boost investment and economic growth, opponents see a different picture. After tax rises on businesses, employers, investors and property owners, many will view the latest ISA changes as further evidence that no corner of personal finance is safe from Chancellor Rachel Reeves’ search for additional revenue.
For savers who believed ISAs provided a straightforward tax shelter for money set aside responsibly, the Government’s latest reforms may come as an unwelcome surprise.
