Written by:
Tom Glanville
Senior Financial Planner at Amber River Shipman Wealth
More Proposed Changes to ISA Rules
For many years the rules regarding Stocks and Shares and Cash ISAs have remained unchanged. Then, in the Autumn Budget of 2025 it was announced that from April 2027 the annual investment limit for Cash ISAs for those under the age of 65 would be reduced to £12,000. The other overall ISA annual limits would remain the same for Stocks and Shares ISAs, LISAs and Innovative Finance ISAs or what HMRC calls Non-Cash ISAs.
Further to this announcement HMRC have proposed again from April 2027 the following:
Interest, or return, earned on uninvested cash in Non-Cash ISAs will be subject to a 22% tax charge, which will be deducted and paid by the ISA manager to HMRC. Interestingly, the Personal Savings Allowance will not apply to cover this return.
Cash like assets, including Money Market Funds (a low risk, highly liquid mutual fund that invests in short-term debt securities), will be allowed to be held in a Non Cash ISA, provided it forms only part of the investment strategy. If they made up 100% of the money held, they would be non-qualifying investments. At this stage, what percentage below 100% is acceptable has not been defined. Irrespective, if the return is to be taxed at 22%, this will impact performance.
In addition, whilst a Cash ISA can be transferred into a Non-Cash ISA, from April 2027 a Non-Cash ISA cannot be transferred into a Cash ISA as they can be at present. This transfer restriction will not apply to those aged 65 and over, but the above rules regarding cash like assets held within non-cash ISAs, including the 22% tax charge will apply to all.
At present, these are only draft proposals, and a consultation is under way, so no action is required. Should there be actual changes to legislation, we will of course advise you further.
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