From 6 April 2027, interest paid or credited on cash held in a stocks and shares ISA or an innovative finance ISA will face “a flat-rate charge of 22%”, HMRC says (HMRC newsletter 22). Under regulations made on 10 September 2026, the ISA manager pays it to HMRC at the savings basic rate for the year, within six months of the end of the tax year, and the investor cannot reclaim it (regulation 22A). It applies at every age, does not apply to Junior ISAs, and leaves cash ISAs untouched.
What HMRC has said
The charge was announced at the Budget on 26 November 2025 as one of three rules to stop the lower £12,000 cash ISA limit being circumvented, alongside a ban on transfers into cash ISAs and a test for “cash-like” investments (HMRC newsletter 19). HMRC’s June 2026 newsletter gives the final policy: “Any interest or alternative finance return paid or credited on cash held in Stocks and Shares and Innovative Finance ISAs (‘non-cash ISAs’) will be subject to a flat-rate charge of 22% to discourage long-term cash holdings” (HMRC).
The same newsletter changed one point from the Budget-day summary. That summary said the anti-avoidance rules would apply to investors under 65. The June newsletter says that for those aged 65 and over, the charge on interest earned on cash in non-cash ISAs “will remain in place”.
How the regulations work
The mechanics sit in a new regulation 22A of the ISA Regulations. It was published in draft for a technical consultation that ran from 25 June to 2 August 2026 (HMRC) and made into law by the Individual Savings Account (Amendment) (No. 2) Regulations 2026 on 10 September 2026, in force from 6 April 2027. Under the regulations as made:
- No relief. Interest on a cash deposit held in a stocks and shares or innovative finance ISA gets no tax relief. Instead, the flat rate charge applies.
- Who pays. “The account manager must pay to the Board a flat rate charge” on all such interest paid or credited in the year, charged “at the savings basic rate in force for the year”.
- When. The amount is payable no later than six months after the end of the tax year in which the interest was paid or credited. For interest credited in 2027 to 2028, which ends on 5 April 2028, that means by early October 2028.
- No refund. Apart from one narrow exception in the settlements rules, the interest is not treated as income for any other income tax purpose, and no repayment can be made to the investor, so a non-taxpayer cannot reclaim the charge.
- What counts as interest. It includes bonuses and dividends on building society share accounts, and alternative finance returns.
- Administration. Managers act on the investor’s behalf for this liability and must include the interest and the amounts payable in their returns to HMRC.
How it is calculated
The charge is a flat percentage of the interest. There is no Personal Savings Allowance against it, and it does not depend on the investor’s own tax band. The rate is tied to the savings basic rate “in force for the year”, which HMRC has set at 22% from 6 April 2027 (HMRC), so if that rate changed, the charge would change with it.
Take a hypothetical £10,000 of cash earning 3.5% a year in 2027 to 2028, so £350 of interest, and compare where it might sit. Tax outside an ISA assumes the 2027 to 2028 savings rates and allowances (HMRC; GOV.UK).
| Where the £10,000 sits | Interest | Tax or charge | Kept |
|---|---|---|---|
| Cash ISA | £350 | None | £350 |
| Cash in a stocks and shares ISA | £350 | £77, the 22% charge | £273 |
| Outside an ISA, basic-rate taxpayer with allowance to spare | £350 | None, within the £1,000 allowance | £350 |
| Outside an ISA, higher-rate taxpayer, allowance used | £350 | £147 at 42% | £203 |
| Outside an ISA, additional-rate taxpayer | £350 | £164.50 at 47% | £185.50 |
The comparison cuts both ways. For a higher or additional-rate taxpayer, 22% is less than their own savings rate. For a basic-rate taxpayer with spare allowance, the same interest earned outside an ISA would be tax-free. Inside a cash ISA, interest stays tax-free (GOV.UK), though under-65s will be able to pay in only £12,000 a year from 6 April 2027.
What counts as cash
The charge applies to interest on a cash deposit held under the stocks and shares or innovative finance part of an ISA. The draft would also have limited such cash to money held for investing or for paying account fees, but the government dropped that purpose rule after consultation (HMRC newsletter 23). HMRC’s stated aim for the charge is “to discourage long-term cash holdings” (HMRC).
Investments are different. Gilts, bond funds and equity funds are not cash deposits, so their coupons and distributions are not caught. A money market fund is also an investment rather than a deposit; on our reading of the regulations, the 22% charge does not reach it, but the separate cash-like test bars a stocks and shares ISA from holding nothing but money market funds. We explain that test in money market funds and the cash-like test.
How much cash is in scope
Cash in stocks and shares ISAs totalled £22.4bn on deposit at 5 April 2025, up from £20.2bn a year earlier, and innovative finance ISAs held £45m (HMRC, Table 9.6). The stocks and shares figure is about 4.2% of the £531.5bn held in stocks and shares ISAs at that date. Not all of it earns interest, and balances move daily, so the figure shows scale rather than the size of the charge.
Who it applies to
- All ages. Holders aged 65 and over keep the £20,000 cash ISA limit but not an exemption from this charge (HMRC).
- Not Junior ISAs. The regulations add regulation 22A to the list of rules that do not apply to Junior ISA accounts (regulation 2D).
- Not cash ISAs. The charge applies to cash in stocks and shares ISAs and innovative finance ISAs only.
Open questions
- The law is made. The regulations were made on 10 September 2026 and laid before Parliament on 14 September, so the open points are about practice rather than the text (HMRC newsletter 23).
- How managers pass it on. The regulations say the manager pays HMRC and acts for the investor. They do not say how the cost is recovered: from interest as it is credited, from the account once a year, or by changing what interest is paid on cash. On a transfer, the old manager accounts for the charge up to the transfer date.
- Guidance. HMRC says it will publish updated ISA manager guidance before the changes take effect on 6 April 2027.
For the full set of April 2027 changes and the alternatives to cash, see our cover story on the cash ISA changes. For how gilts and bond funds work, see bonds explained, and for wrappers more broadly, tax-efficient investing.
