What the New 22% ISA Tax Means for Savers

If you've seen headlines about a new 22% tax on ISAs, you're not alone. The announcement has caused plenty of confusion, with some people wondering whether ISAs are about to lose their tax advantages altogether.

Fortunately, that's not what's happening.

The planned reforms don't introduce a tax on investments held inside an ISA. Instead, they're designed to prevent people from using investment ISAs as an alternative to a Cash ISA by holding large amounts of cash within them.

The changes were first announced in the 2025 Autumn Budget, with the detailed rules published by HMRC on 23 June 2026. If implemented as planned, they will take effect from 6 April 2027.

Under the new rules, people under 65 will be able to contribute up to £12,000 each tax year into a Cash ISA, while the overall ISA allowance will remain £20,000. To prevent people from bypassing that lower Cash ISA limit by holding cash inside a Stocks & Shares ISA or Innovative Finance ISA, the government plans to introduce a 22% charge on the interest earned from cash held within those accounts.

For most investors, this won't affect how investments are taxed. Shares, funds, ETFs and bonds held inside a Stocks & Shares ISA will continue to benefit from the tax advantages ISAs are known for. The proposed charge applies only to interest earned on uninvested cash, not to investment growth, dividends or capital gains.

The reforms also introduce further anti-circumvention measures. From April 2027, people under 65 will no longer be able to transfer money from a Stocks & Shares ISA into a Cash ISA, although transfers in the opposite direction will still be allowed. Money market funds will still be permitted, but investors won't be able to hold an investment ISA entirely in money market funds as a way of effectively treating it like a cash account.

If the reforms go ahead, savers won't need to calculate or report the new charge themselves. The ISA provider will be responsible for deducting the 22% charge on any eligible interest and paying it to HMRC.

The proposals have prompted mixed reactions. The government says the reforms are designed to encourage more long-term investing while preserving the purpose of different ISA types. Some investment platforms and consumer groups, however, argue the changes make the ISA system more complex and could affect people who temporarily hold cash while deciding where to invest.

Although the rules aren't due to take effect until 6 April 2027, the announcement is a reminder that tax rules and allowances can change over time. Understanding how different ISAs work, and what each is designed for, can help you avoid surprises as the rules evolve.