Why a tax on ISA cash interest would cost most savers less than £20

Savers could face a 22 per cent tax on any interest earned on cash in a stocks and shares ISA from April 2027 under government plans – but the amount most savers would actually pay is very small.

From next April, the government is cutting the annual cash ISA allowance to £12,000 for under-65s, down from £20,000 currently.

The aim is to get more people putting their money into stocks and shares ISAs – where you can invest your money and the returns are tax-free – with the goal of boosting the sluggish UK stock market and seeing people get better returns on their money.

As part of this, the government is working on so-called ‘anti-circumvention rules‘, which stop people finding workarounds to the policy, including banning transfers from stocks and shares ISAs to cash ISAs.

But another proposal on the cards is implementing a 22 per cent charge on any interest earned on cash sat in a stocks and shares ISA, to prevent people effectively dodging the cash ISA cut.