A new fee is scheduled to be implemented on interest gained from cash stored in stocks and shares ISAs starting next year.
The charge aims to prevent savers from circumventing the new cash ISA limit regulations. These rules will reduce the annual cash ISA limit from £20,000 to £12,000 for individuals under 65, effective from April 2027. However, the cash ISA allowance for those aged 65 and above will remain at £20,000.
Despite the decrease in the cash ISA limit, individuals under 65 will still have an overall £20,000 ISA limit. This allows savers the option to distribute £12,000 into a cash ISA and allocate the remaining £8,000 to another type of ISA.
The government’s rationale behind these changes is to encourage investment, with the limit on other ISAs like stocks and shares ISAs and innovative finance ISAs remaining unchanged at £20,000.
A newly released factsheet on the HMRC website has confirmed that a 22% levy will be imposed on interest earned from cash held in stocks and shares ISAs.
Moreover, savers will no longer be permitted to have their entire non-cash ISA portfolio in Money Market Funds. These funds are cash-like assets that invest in short-term debt securities.
The updated regulations also prohibit individuals from transferring £20,000 to a non-cash ISA and then moving these funds to a cash ISA.
HMRC announced that a technical consultation with the industry on the draft legislation will commence soon, with regulations set to be introduced in the autumn.
Commenting on the changes, Simon Harrington, head of public affairs at the Personal Investment Management and Financial Advice Association, expressed skepticism about the potential impact on consumer investment behavior, suggesting that the alterations might make stocks and shares ISAs less appealing.
Andrew Gall, head of savings at the Building Societies Association (BSA), welcomed the government’s clarification on the proposed ISA reforms, emphasizing the importance of providing savers with clear information and ample time to grasp the implications of the changes.
Andrew Prosser, head of Investments at InvestEngine, raised concerns that the complexity introduced by the changes could discourage people from investing. He emphasized the need for improved financial education to foster a stronger investment culture in the UK.
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