Rachel Reeves’ Proposed 22% ISA Tax Charge: What it means for Savers

Published: July 2026

Recently, Chancellor Rachel Reeves set out further details of the Government’s ISA reforms, including a proposed flat rate of 22% tax on interest earned from cash held inside non-Cash ISAs, such as Stocks and Shares ISAs. The charge is currently due to apply from 6 April 2027. 

In simple terms, the change does not mean that investments inside a Stocks and Shares ISA will suddenly be taxed. Instead, it targets interest earned from cash that is sitting inside a Stocks and Shares ISA (investment ISA) and earning interest. The Personal Savings Allowance does not apply to interest paid within an ISA.    

Although the current guidance doesn’t state that the proposed 22% tax charge will apply to cash-like investments, such investments won’t be able to make up 100% of the Stocks and Shares ISA. This closes a loophole publicised in many news outlets that was largely stirred by the planned reduction to Cash ISA allowances to £12,000 from April 2027 for savers under 65 years old.  

Savers aged 65 and over will continue to have access to the full £20,000 Cash ISA allowance. 

However, the tax-free status on any investment returns within a Stocks and Shares ISA remains unchanged, such as capital gains or dividends on shares, funds, investment trusts, exchange-traded funds, corporate bonds or government bonds. This is part of the government’s push to drive more capital towards investments. 

Going forward, savers will need to think carefully about how they split contributions between cash and investments as there are also plans to stop transfers from Stocks and Shares ISAs to Cash ISAs for under 65s to circumvent the changes.  Seeking regulated financial advice may help in deciding the right strategy for them. 

What about higher earners and additional rate earners? 

The proposed 22% tax charge is expected to apply as a flat-rate charge on interest earned from cash held inside non-Cash ISAs. This means a higher-rate taxpayer will not face a 40% charge, and an additional-rate taxpayer will not face a 45% charge, on this specific ISA cash interest.  

Instead, the ISA manager will pay the 22% charge to HMRC, and individuals are not expected to declare the interest from non-Cash ISAs to HMRC themselves.  

Final details have not yet been provided and are expected in the Autumn. 

If you would like to discuss how the change in ISA rules will impact your family’s wider financial planning, please contact one of our Chartered Financial Planners on 01223 233331 or email info@mmwealth.co.uk. 

Disclaimer 

Opinions constitute our judgment as of this date and are subject to change without warning.  The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment.  Past performance is not a reliable indicator of future performance.  

This article is for general information only and does not constitute personal financial advice, a personal recommendation, or an offer or solicitation to buy or sell any investment. The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change, and tax treatment depends on individual circumstances.  The Financial Conduct Authority does not regulate tax advice.