If you have been treating a Stocks and Shares ISA as somewhere to park spare cash tax efficiently, that is set to change.
The Treasury has confirmed a 22 per cent tax on interest earned from cash left uninvested inside these accounts, a policy it had previously played down.
This new rate takes effect from April 2027, in line with wider changes to the ISA regime.
The bigger picture for ISAs and tax planning
The £20,000 annual ISA allowance will remain in place next year, but where your money can be invested is changing from the 2027/28 tax year for everyone under the age of 65.
Where savers could once put the full tax-free allowance into a Cash ISA, that will be capped at £12,000, with the remaining £8,000 required to go into a different wrapper, typically a Stocks and Shares ISA.
To stop that wrapper becoming a backdoor way of holding tax-free cash beyond the cap, interest on uninvested cash inside it will now be taxed at 22 per cent, and moving money back into a Cash ISA to avoid the limit will not be allowed either.
Who is most likely to be affected
Those savers who are sitting on larger uninvested balances are likely to be affected by this change when it is introduced next year.
So, it is worth checking your own account to see how much is currently sitting as cash rather than invested.
A small buffer for fees or opportunities may still make sense, but larger sums held as cash will simply become less tax efficient to hold there over time.
What to do now
The changes to ISAs mean that you may need to reassess your current tax planning if you have previously relied on these savings to manage your liabilities.
ISAs will still continue to be a tax-efficient form of investment, but the management of funds held in these accounts will require more careful management.
If you want to know how these changes will affect your tax planning opportunities from next April onwards, please get in touch with our team.
