New ISA tax from April with 22% HMRC charges on table | Personal Finance | Finance
A new tax for ISAs is set to be introduced from April 2027 which could see account holders charged a 22% tax on interest by HMRC. Chancellor Rachel Reeves is reported to be keen to close a loophole which could allow ISA account holders to effectively sidestep the new cut-down £12,000 limit when it comes into effect from April 6, 2027.
Under plans announced in the last Budget, Cash ISA savers will only be able to deposit £12,000 a year in their Cash ISA, reduced from the current limit of £20,000 (unless they’re 65 and over, who will not be affected). Any money put into an ISA is protected from tax on any and all interest generated as long as you don’t exceed annual deposit limits each financial year.
The change is part of plans to encourage more UK households to invest instead. Stocks and Shares ISAs will not have their limits cut, meaning you could still deposit £20,000 into Stocks and Shares ISAs in a single tax year, as before.
However, a loophole could allow savers to deposit money into a Stocks and Shares ISA and hold it as cash without actually investing it, thereby avoiding tax on the interest up to £20,000, just as before.
According to reports in the Telegraph and the i, Ms Reeves is looking to close this loophole sharply by bringing in a 22% charge on cash held in Stocks and Shares ISAs from April 2027.
The 22% tax is the same as the savings interest tax rate also due to go into effect from April 2027, and is similar to a previous 20% charge that existed in 2013. Thius charge, if implemented, would then be collected by HMRC as tax, just as tax owed on savings will be.
Rachel Vahey, of investment platform AJ Bell, said: “This really does need resolving if the Treasury wants to keep to the timeline of April 2027.
“It leaves us with very little time to make changes. At the moment, we’re looking at a very sharp implementation period and we really need some clarity from the Treasury as soon as we can get it.”
A Treasury spokesperson said: “We are reforming the cash Isa to encourage more people to invest in stocks and shares which have historically performed better than cash savings and we have retained the generous £20,000 tax-free limit.”
