Finance Matters Insights
Stocks & Shares ISA tax on cash: what changes in 2027
If you've been seeing headlines about new ISA charges and wondering what it actually means for you, here's the breakdown.
From April 2027, cash held inside a Stocks & Shares ISA will be subject to a new tax charge on the interest it earns. Reports suggest the rate will be 22%, in line with the new savings interest tax that's also being introduced next year.
📈 Utilising your Stocks & Shares ISA
A Stocks & Shares ISA is an account designed for investing. You can put up to £20,000 a year into it, and any growth (whether through dividends, share price gains, or interest) is shielded from tax. It's the wrapper that does the work, not the investments themselves.
What a lot of people don't realise is that when you pay money into a Stocks & Shares ISA, it lands as cash first. It's only when you actively choose what to invest in that the money goes to work. Some people leave it sitting as cash for months, sometimes years, without ever taking that second step and while that cash sits there, it earns interest, which until now has also been tax-free.
On the flip side, some people are very aware and use that as an opportunity to hold cash, earning interest, tax-free. This becomes particularly relevant as the Cash ISA limit is dropping from April 2027.
💸 What's changing?
In the Autumn 2025 Budget, Rachel Reeves announced that from 6 April 2027, the Cash ISA allowance for under-65s will be cut from £20,000 to £12,000. The remaining £8,000 has to go into a different ISA product, like a Stocks & Shares ISA or Lifetime ISA. Over-65s are unaffected and keep the full £20,000 Cash ISA allowance.
The overall ISA allowance remains at £20,000.
The aim is to encourage UK savers to invest more rather than hoard cash. Compared to other G7 countries, British households have historically kept significantly more of their money in cash savings, and Reeves wants to shift the country toward being "a nation of investors" rather than savers.
Without the new tax charge on cash inside a Stocks & Shares ISA, the policy would have a fairly obvious loophole. Savvy savers could simply park their cash inside a Stocks & Shares ISA, keep it as cash, and continue to shelter the full £20,000 from tax. The new charge is the government's way of closing that loophole before it opens.
💡 What this actually means for you
If you're a pure saver, the Cash ISA is still your most tax-efficient home for cash up to £12,000 a year. Anything beyond that gets taxed, whether it sits in a regular savings account or inside a Stocks & Shares ISA. The wrapper stops being a workaround.
If you're an investor, this change barely touches you. As long as your Stocks & Shares ISA is actually invested rather than sitting as cash, the new tax doesn't apply and your dividends, growth, and interest from invested assets all remain tax-free.
For most people who sit somewhere in the middle, it's worth checking what's actually inside your Stocks & Shares ISA. If you've been paying in but haven't invested it, you've got a window between now and April 2027 to either invest the cash or move it into a Cash ISA where it can still earn interest tax-free.
The bigger picture is that the rules are evolving, but the case for using a Stocks & Shares ISA properly hasn't changed. Cash has its place (emergency funds, short-term goals), but it's a slow way to grow wealth. The wrapper still does powerful work when it's used for what it's designed for.
So yes, more tax to be aware of, but what's new?
F
Fisayo Martins
Founder at Finance Matters UK
Never miss an insight
SUBSCRIBE FREE
Join the Insider List for newsletters straight to your inbox, plus exclusive event access and member discounts.
