Investors holding cash in a stocks and shares ISA face a triple blow from next year, when new rules come into effect. From April 2027, any interest earned on uninvested cash held in a stocks and shares ISA will be taxed at 22%, and investors will be barred from moving cash from their stocks and shares ISA into a cash ISA.
Research by consumer group Fairer Finance found that almost half (46%) of stocks and shares ISA providers pay 0% interest on cash, while 84% of platforms pay less than 3% – a level below the average for a savings account. Of the 49 providers analysed, 21 offer no interest at all, 33 offer rates of less than 2% and 37 offer less than 3%.
James Daley, managing director at Fairer Finance, said: “Consumers now face a triple blow: a new tax on cash held in their stocks and shares ISA, no ability to transfer back to a cash ISA, and investment platforms paying little or no interest.”
The changes form part of the biggest ISA shakeup since the tax wrapper was introduced in 1999. While the total £20,000 annual ISA allowance will remain, savers under 65 will only be able to save a maximum of £12,000 a year in cash ISAs from April 2027. HMRC later confirmed anti-circumvention rules, including a ban on ISA portfolios made up of 100% ‘cash-like’ investments such as money market funds.
Interest rates on uninvested cash have tumbled since the Bank of England started reducing the base rate, Fairer Finance said. Hargreaves Lansdown has halved rates on cash balances below £10,000 since August 2024, moving from 2.75% to 1.3%. The highest rate currently available for uninvested cash in a stocks and shares ISA is 3.8%, offered by Trading 212, down from a peak of just over 5% in 2024.