HMRC announces 22% tax on cash interest held in stocks and shares Isas

The UK government has unveiled significant reforms to Individual Savings Accounts (ISAs), introducing a new first-time buyer account and altering rules for cash savings. These changes aim to adapt savings products to current economic realities and encourage investment.

The proposed first-time buyer ISA will feature a 25% government bonus, disbursed upon the purchase of a property. Notably, this new account will not have an upper age limit for new savers, addressing the rising age at which individuals are buying their first homes. This initiative replaces the Lifetime ISA (LISA), which had an upper age limit of 40 for new savers and offered a bonus paid annually.

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marks a clear step towards creating a savings product that better reflects the realities facing aspiring homeowners, but there are issues still to be ironed out.

Further changes target how cash is held within stocks and shares ISAs. Currently, interest earned on cash held in these accounts is tax-free. However, from April 2027, this interest will be taxed at 22%. Additionally, investors will face restrictions on holding more than 100% of their stocks and shares ISA in low-risk money market funds, which closely mirror cash returns.

These reforms follow previous announcements by Chancellor Rachel Reeves regarding major ISA regime changes, including the discontinuation of the LISA and a lower cap on cash ISA savings for those under 65. The government is launching a consultation to gather feedback on the new first-time buyer ISA, including the £450,000 property price cap, which has remained unchanged since the LISA's introduction in 2017.

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Unfortunately, this does not appear to have been addressed within the new product as yet, and [the Treasury] even goes as far as suggesting that the existing cap is suitable.