CEO, The Savvy Investor Limited · Investment Educator
Published: 25 June 2026 · Reading time: 6 minutes
What’s changed: Updated 28 October 2026: the Budget dropped the £12,000 cash ISA cap this charge was built to protect, and does not say whether the charge itself still goes ahead. Full update history.
⚠️ Important: This article provides educational information for UK residents and is not personalised financial advice. It explains a rule that was made in regulations in September 2026 and whose future is unclear after the Budget of 28 October 2026. ISA rules may change before April 2027. Consider speaking to an FCA-authorised adviser before making decisions about your savings.
The 2027 ISA reform came with a less-noticed rule beneath the headline £12,000 cash ISA cap: from 6 April 2027, a flat 22% charge on interest earned on uninvested cash held inside a stocks and shares ISA (and an innovative finance ISA). It was written into regulations in September 2026. Then, on 28 October 2026, the Budget dropped the cap it was built to protect. The cash ISA limit now stays at £20,000 for everyone, and the Budget documents do not say what happens to the charge. Here is what the rule says, why it was made, and where it stands now.
The short version
- Regulations made in September 2026 set a flat-rate charge on interest (and Sharia-compliant alternative-finance returns) on cash held inside a non-cash ISA, meaning a stocks and shares ISA or an innovative finance ISA, from 6 April 2027. The June 2026 factsheet put it at 22%.
- It was designed to close a workaround the £12,000 cash ISA cap would have left open: parking cash in an investment ISA to keep it tax-free while dodging the cash limit.
- The Budget of 28 October 2026 dropped that cap. The cash ISA limit stays at £20,000, and regulations to make the change are due to be laid before Parliament in November 2026.
- The Budget documents are silent on the charge. The same goes for the transfer ban and the money market fund rule made alongside it. One Budget document says that, with the £20,000 limit kept, these rules “no longer need to be applied” to the new First Time Buyer ISA.
- The exception, if the charge goes ahead: money market funds are the only permitted “cash-like” holding, and an ISA cannot be 100% cash-like. A money market fund inside a stocks and shares ISA is not caught by the charge.
- As made, the charge applies to cash in investment ISAs regardless of your age.
What was announced, and what the Budget changed
The 2027 ISA reform had three moving parts. The November 2025 Autumn Budget announced the headline change: from 6 April 2027 the cash ISA allowance for under-65s would drop from £20,000 to £12,000, with the remaining £8,000 of the £20,000 ISA allowance reserved for investment-type ISAs. In June 2026 the government published the detailed “anti-circumvention” rules that sat underneath that headline, and this is where the cash charge appeared. The June factsheet set out “a flat-rate charge (22%) on any interest or alternative finance return paid on cash held within a non-cash ISA”, taking effect from 6 April 2027.
HMRC’s September 2026 savings newsletter confirmed the rules were laid in regulations with the cap, and described their purpose plainly: “The regulations also introduce rules meant to stop investors from avoiding the lower Cash ISA limit.” It described the charge as “set at the savings basic rate”.
The Budget on 28 October 2026 removed the lower limit. The Red Book says “the government has decided not to reduce the cash ISA limit, so that it remains at £20,000.” It does not mention the cash charge, the transfer ban or the money market fund rule, and neither does the overview of tax legislation published alongside it. The only Budget document that touches them is the government’s response on the First Time Buyer ISA: “The government is retaining the annual cash ISA subscription limits at £20,000, meaning anti-circumvention rules no longer need to be applied to the FTB ISA, including on transfers.” That sentence is about the new First Time Buyer ISA only. Nothing in the documents says whether the same reasoning will be applied to the charge on stocks and shares ISAs. Our guide to what the Budget changes for savers covers the rest of the package.
Why the charge was made
The charge only makes sense alongside the cap. Without it, the £12,000 cash ISA cap would have had an obvious hole. A saver who wanted to keep £20,000 of cash entirely tax-free could simply open a stocks and shares ISA, leave the money sitting in the account’s cash facility earning interest, and never buy a single investment. The cap on the cash ISA would be sidestepped, and the Treasury’s nudge toward investing would achieve nothing. The transfer ban made alongside it (under-65s could not move money from a stocks and shares ISA into a cash ISA from April 2027) was meant to close one route; the cash charge was meant to close the other, the one where the cash never leaves the investment wrapper in the first place. With the £20,000 cash ISA limit kept, there is no lower cash limit left for either rule to protect.
Who pays it, and the money market fund exception
This is the rule as made in September 2026. If it goes ahead unchanged, it is narrower than the headlines suggested.
- It hits uninvested cash, not your investments. Shares, funds, ETFs, bonds and other genuine investments inside a stocks and shares ISA are completely unaffected. The charge applies only to interest on cash that is sitting in the account.
- It applies regardless of age. The £12,000 cap would only have affected under-65s, but the cash charge as made is not age-limited.
- Money market funds are the exception. The rules define money market funds as the only permitted “cash-like” holding, and they are not treated as cash for the purposes of the charge. The one limit: an ISA cannot be 100% cash-like, so you cannot fill an entire stocks and shares ISA with a money market fund and call it done. Used as part of a wider portfolio, though, a money market fund is the compliant way to hold a low-risk, near-cash position inside an investment ISA.
- It covers alternative-finance returns too. Sharia-compliant returns paid on cash held in a non-cash ISA are treated the same way as interest.
A worked example
Suppose you hold £40,000 of uninvested cash inside a stocks and shares ISA, earning 4.5% interest. That is £1,800 of interest in a year. If the charge goes ahead at the 22% in the June factsheet, it takes £396 of it, leaving £1,404. Without the charge, all £1,800 stays tax-free, as it does today. The charge does not wipe out the return, but it removes most of the reason for holding the cash in an investment ISA rather than a cash ISA or an ordinary savings account.
How it fits the wider 2027 ISA reform
The cash charge was one of a connected set of changes due on 6 April 2027. This is where each of them stands after the Budget of 28 October 2026.
| Change due 6 April 2027 | As made in 2026 | After the 28 October 2026 Budget |
|---|---|---|
| Cash ISA cap | Under-65s limited to £12,000 of the £20,000 allowance in a cash ISA | Dropped: the cash ISA limit stays at £20,000 for everyone |
| Transfer ban | Under-65s cannot transfer from a stocks and shares ISA into a cash ISA | Not mentioned in the Budget documents |
| Charge on ISA cash interest | A flat-rate charge (22% in the June factsheet) on interest on uninvested cash in a non-cash ISA, any age | Not mentioned in the Budget documents |
| Savings tax outside ISAs | Rises to 22% / 42% / 47% | Rises further, to 24% / 44% / 49% |
The rate is the detail to keep an eye on. The June factsheet set the charge at 22%, and HMRC’s September newsletter described it as “set at the savings basic rate”, which was due to be 22% from April 2027. The Budget raises the savings basic rate to 24% from that date. The documents do not say whether the charge would follow it. For the cap itself and how it was dropped, see our cash ISA cap guide.
What to watch before April 2027
- The November 2026 regulations. The Treasury says regulations keeping the cash ISA limit at £20,000 will be laid before Parliament in November 2026. The cap and the cash charge were made in the same September 2026 regulations, so the November change is the first place a decision on the charge could show.
- HMRC’s ISA manager guidance. HMRC’s September newsletter said: “We’ll publish updated ISA manager guidance before the changes take effect on 6 April 2027.”
- The money market fund route. If the charge goes ahead as made, a money market fund held inside a stocks and shares ISA is not treated as cash for the charge, provided the ISA is not entirely cash-like.
- How your platform handles cash. Some investment platforms automatically sweep uninvested cash into an interest-paying facility. That interest is what the charge would apply to.
- Investing basics. For readers moving idle ISA cash into investments, our guide to starting with £1,000 in the UK covers the basics, including low-cost global index funds.
Frequently asked questions
Does the 22% charge apply to my investments?
No. It applies only to interest on uninvested cash inside a stocks and shares ISA or innovative finance ISA. Shares, funds, ETFs and bonds are unaffected, and the returns on them stay tax-free inside the ISA as before.
Is a cash ISA affected by the charge?
No. Interest in a cash ISA remains tax-free. The charge as made applies only to cash held in a non-cash ISA, meaning a stocks and shares or innovative finance ISA. The £12,000 under-65 cash ISA cap was dropped at the 28 October 2026 Budget, so the cash ISA limit stays at £20,000.
I am over 65. Does this affect me?
If the charge goes ahead as made, yes. Unlike the transfer ban, which was limited to under-65s, the charge on cash held in an investment ISA is not age-limited, so it would apply to cash inside a stocks and shares ISA whatever your age.
Can I avoid the charge with a money market fund?
A money market fund held inside a stocks and shares ISA is not treated as cash for the charge, so it is the compliant way to hold a low-risk, near-cash position inside the wrapper. The one rule is that an ISA cannot be entirely cash-like, so a money market fund has to sit alongside genuine investments, not replace them all.
Is this definitely happening?
Not for certain. The charge was written into regulations in September 2026 to take effect on 6 April 2027. The Budget of 28 October 2026 then dropped the cash ISA cap it was designed to protect, but the Budget documents do not say whether the charge will be removed with it. Until the November 2026 regulations or HMRC guidance settle it, the charge remains in the regulations as made.
The Savvy Investor’s take
The cash charge was never meant to stand alone. It was built to stop people getting around the £12,000 cash ISA cap, and the Budget has now dropped that cap. A rule that exists to protect a limit that is no longer coming is an obvious candidate to go too, but the government has not said so, and the charge is still in the regulations as made.
For most savers who actually invest their stocks and shares ISA, none of this changes anything. For anyone holding a lot of uninvested cash inside one, the November 2026 regulations and HMRC’s updated guidance are the documents that will settle it.
This article is general information about a government reform, and is not financial advice. The rules described were made in September 2026 and may change before 6 April 2027, following the Budget of 28 October 2026. Whether any ISA or savings product suits you depends on your own circumstances. For regulated advice, speak to a financial adviser authorised by the Financial Conduct Authority. Savvy Investor Guide is not authorised or regulated by the FCA.
Key sources
- GOV.UK, ISA reform 2027: anti-circumvention rules factsheet (published 23 June 2026; moved to the National Archives on 28 October 2026, as noted on the Fiscal Events 2026 factsheets page)
- HMRC, Tax-free savings newsletter 23, September 2026
- HM Treasury, Budget 2026 document, 28 October 2026
- HM Treasury, First Time Buyer ISA consultation: government response, 28 October 2026
- Accountancy Age, 22% tax on ISA cash interest as HMRC closes the loophole (24 June 2026)
- MoneySavingExpert, cash and investment ISA reforms (24 June 2026)
Update history: 28 October 2026
Update, 28 October 2026. The Budget dropped the £12,000 cash ISA cap for under-65s, so the cash ISA limit stays at £20,000 from April 2027. The Budget documents do not say whether the cash charge, the transfer ban or the money market fund rule made alongside the cap will go ahead. The article has been rewritten to reflect this, the savings tax rates in the table now show the Budget’s 24% / 44% / 49%, and the cap-dependent planning points have been replaced with what to watch. The June factsheet link now points to the GOV.UK page that records its move to the National Archives.