The Treasury has confirmed a new charge on interest earned from cash held in stocks and shares ISAs, prompting a response from Martin Lewis. The 22 per cent levy is designed to prevent savers from circumventing new cash ISA limit rules set to take effect from April 2027.
New cash ISA limit and levy details
At the 2025 autumn budget, the government announced that the annual cash ISA allowance would be reduced to £12,000 from April 2027. However, the limit for stocks and shares ISAs and innovative finance ISAs will remain at £20,000, alongside measures to encourage an investment culture. For individuals aged 65 and over, the cash ISA allowance will stay at £20,000.
The new 22 per cent charge applies to interest earned on cash held within stocks and shares ISAs, a move aimed at discouraging savers from using these accounts as cash substitutes.
Reactions from financial commentators
Journalist Merryn Somerset Webb reacted on X, stating: "The joy of ISAs used to be simplicity. We have to stop this endless fiddling with everything. Complication kills everything." Martin Lewis, founder of MoneySavingExpert.com, responded to her post, acknowledging that while he largely agrees, some changes are necessary.
Lewis explained: "I agree with you in the generality, but to be fair this is a replacement to the massively overcomplex LISA which tried to merge retirement saving & first time buying. Its a product mainstream banks don't offer because of worries they'll be done for misselling (over retirement savings). Many in SE England who use it now face paying the state a fine because they're priced out of the market, and there's a withdrawal penalty for 1st time buyers who use the money to buy a house above the threshold (which hasn't moved since 2017) The new proposals are much simpler, though not without some issues; hopefully iron-out-able in the consultation." Yet it still leaves many who have LISAs in limbo, as they won't be able to transfer into the new product.
Further clarification from Martin Lewis
In another post, Lewis continued: "It's only the interest on cash held in Shares ISAs that will be taxed at 22%. Its part of the 'make more (especially young) people invest' agenda and has been long flagged. That's a good thing, its the way its being done that I and many others object to." He noted that this sits alongside cutting the cash ISA limit for under 65s, and at least gilts weren't counted as 'cash-like'.
Impact on savers and investors
The changes are expected to affect savers who use stocks and shares ISAs primarily to hold cash, as they will now face a tax on interest. The reduction in the cash ISA allowance from £20,000 to £12,000 for those under 65 aims to steer more individuals towards investment products. However, critics argue that the complexity of the new rules could discourage saving and investment.
