HMRC sets 22% tax charge for cash interest in stocks-and-shares Isas

Traders Union
All News
Financial News
HMRC 22% tax on Isa interest

Highlights

HMRC will apply a 22 per cent tax charge on interest paid on cash held within non-cash stocks-and-shares Isas under new rules.
Non-cash Isas cannot be fully invested in money market funds, and transfers from non-cash Isas to cash Isas will be prohibited, with reverse transfers still allowed.
The measures, effective before April's Isa system launch, aim to prevent circumvention of reduced £12,000 cash allowance and channel more funds into capital markets.

New Isa rules due before April launch

As reported by the Financial Times, HM Revenue & Customs is preparing to update the market on three core rules that will underpin the new Isa system. A document seen by the newspaper shows the tax authority plans to apply a flat 22 per cent charge to interest paid on cash held within non-cash Isas.

The same document says non-cash Isas cannot be fully invested in cash-like assets, meaning money market funds cannot make up 100 per cent of an investor's portfolio. HMRC says those assets will be defined only as money market funds, and adds that banning them outright would hamper normal investor behaviour.

HMRC also confirms that transfers from non-cash Isas into the cash product will not be allowed, while transfers from cash Isas into investment accounts will remain possible. The measures follow the government's Isa overhaul announced in last November's Budget, including a plan to cut the annual cash allowance for under-65s to £12,000 from £20,000.

Industry warns of complexity and marketing risks

The restrictions are designed to stop savers using investment Isas as a way around tighter cash Isa limits, while channeling more household money into capital markets, listed equities and the domestic economy. But the planned changes are already drawing criticism from providers, which say they make a previously simple tax-free savings product harder to operate and explain.

Brian Byrnes, director of personal finance at Moneybox, says the changes introduce new charges, restrictions and eligibility rules within stocks-and-shares Isas, making one of the UK's most important investment products significantly more complex than it is today. Concerns have also grown around the treatment of money market funds, which are often used as a first step into investing and as an alternative to cash.

Alex Campbell, director of external affairs at Freetrade, says the 22 per cent charge on interest earned on cash held in a stocks-and-shares Isa may limit platforms' ability to market the wrapper as tax efficient. He adds that platforms may respond by lowering or removing interest payments on cash balances to reduce charges passed on to consumers. HMRC and the Treasury do not immediately respond to a request for comment.

Our earlier article on the Financial Reporting Council’s sanctions against King & King and its audit partner Milankumar Patel detailed how the regulator found serious auditor-independence breaches across more than 140 audits linked to Sanjeev Gupta’s GFG Alliance. We noted that heavy revenue dependence on a single client group drove the penalties, including fines, bans and monitoring requirements, underscoring broader concerns about risk controls and accountability in the UK’s financial system.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.