Key facts
- Interest on cash held in stocks and shares Isas will be taxed at 22% from April 2027.
- A new first-time buyer Isa is proposed with no upper age limit.
- The first-time buyer Isa will offer a 25% government bonus paid upon property purchase.
- Under-65s will face a £12,000 annual limit for cash Isa contributions from April 2027.
- Investors will be limited to holding less than 100% of their stocks and shares Isa in money market funds.
HM Revenue and Customs (HMRC) has announced plans to introduce a 22% tax on interest earned from cash held within stocks and shares Individual Savings Accounts (Isas) starting from April 2027. This measure is part of broader Isa reforms aimed at encouraging investment and preventing savers from using these accounts to hoard cash, particularly in light of new limits on cash Isa contributions. Under the proposed changes, individuals under 65 will be restricted to depositing a maximum of £12,000 annually into a cash Isa from April 2027. Previously, stocks and shares Isas allowed customers to hold cash alongside investments with tax-free interest. The new rules will subject all such interest to a 22% tax rate. Furthermore, investors will be limited to holding less than 100% of their stocks and shares Isa in low-risk money market funds. Alongside these changes, the government is consulting on a new first-time buyer Isa. This account will be available to individuals over 18, removing the age limit present in the Lifetime Isa (Lisa). It will offer a 25% government bonus, paid upon property purchase rather than annually, and will not include the 25% penalty for withdrawals for other reasons that was a feature of the Lisa. The consultation also seeks feedback on the existing £450,000 property price cap. Experts have offered mixed reactions. Rachael Griffin of Quilter noted the first-time buyer Isa better reflects aspiring homeowners' realities but highlighted that the £450,000 price cap remains unaddressed. Rachel Vahey from AJ Bell criticized the reforms for reducing flexibility, increasing complexity, and potentially discouraging new investors by entrenching the divide between cash and investment accounts.