What the new ISA cash charge means for investors in 2027

From April 2027, an important change to ISA rules will affect many investors who hold cash within their investment ISAs.

Following the government’s wider ISA reforms, interest earned on uninvested cash held inside Stocks and Shares ISAs and other non-cash ISAs will be subject to a 22% charge. While the change is intended to encourage long-term investing rather than cash saving, it also raises practical questions for investors who temporarily hold cash as part of their investment strategy.

Cash continues to play an important role within many investment portfolios. However, the new rules may prompt investors to review how cash is being used within their investment ISA and whether it still supports their wider financial objectives.

At a glance 

• From 6 April 2027, interest earned on cash held within Stocks and Shares ISAs and Innovative Finance ISAs will be subject to a 22% charge.

• The charge applies regardless of age, income or taxpayer status.

• The change is intended to discourage investors from holding large cash balances within investment ISAs.

• Certain money market funds will not be treated as cash, provided they do not make up the entirety of an investment ISA.

• Cash can continue to play an important role within an investment portfolio, particularly for short-term liquidity and administrative purposes.

Why has the government introduced the charge? 

The government’s objective is to reduce the incentive for investors to use investment ISAs as an alternative home for large cash balances.

Without the new rules, investors could deposit cash into a Stocks and Shares ISA and leave it uninvested while continuing to benefit from the ISA wrapper.

The new charge is intended to encourage investment ISAs to be used primarily for long-term investing rather than as an extension of a Cash ISA.

Does this mean cash has no place in a Stocks and Shares ISA? 

No, it doesn’t.

Cash often serves a practical purpose within an investment portfolio, whether it is waiting to be invested, receiving dividends or bond income, funding withdrawals, supporting portfolio rebalancing or meeting adviser and platform charges. The key consideration is how long that cash remains uninvested.

Balancing cash and investments 

The new 22% charge is one factor to consider as part of your wider financial plan.

Over time, inflation can reduce the purchasing power of cash, meaning the same amount of money may buy less in the future. Cash can provide stability and liquidity when funds are needed in the short term, while investments have the potential to deliver higher long-term returns, although their value can fall as well as rise and returns are not guaranteed.

The right balance between cash and investments will depend on your objectives, investment timeframe and attitude to risk.

How are money market funds treated? 

The government has confirmed that certain money market funds will not be treated as cash for the purposes of the new 22% charge, provided they do not make up the entirety of an investment ISA.

Money market funds invest in short-term debt securities and are designed to preserve capital while providing a modest return. Although they may offer an alternative to holding cash, they remain investments rather than deposits. Their value can fluctuate, returns are not guaranteed and they do not offer the same protections as cash held with a bank.

Whether they are appropriate will depend on your individual circumstances and investment objectives.

Should you make changes? 

The introduction of the new charge does not necessarily mean you need to make immediate changes to your portfolio.

Whether any action is appropriate will depend on why cash is being held, how soon it is expected to be invested and whether your portfolio continues to reflect your long-term objectives.

Looking beyond tax changes 

Tax efficiency is an important part of financial planning, but it is only one consideration when making investment decisions.

Your financial goals, investment timeframe, attitude to risk, capacity for loss, income needs and wider tax position should all be considered when deciding how your investments are structured.

What about first-time buyers? 

Alongside these ISA reforms, the Government has announced plans to replace the Lifetime ISA with a new First-Time Buyer ISA. Existing Lifetime ISAs remain available while the consultation process continues.

How Foster Denovo can help 

Changes to tax legislation can affect how your investments fit within your wider financial plan.

If you would like to understand how the new ISA rules may affect your circumstances, a Foster Denovo financial adviser can help explain the implications and discuss whether any changes may be appropriate.

Get in touch:

Please contact your Foster Denovo Partner or email advise-me@fosterdonovo.com or call 0330 332 7866 for more information.

Frequently asked questions 

Will I pay 22% tax on my Stocks and Shares ISA? 

No. The charge only applies to interest earned on uninvested cash held within a Stocks and Shares ISA from April 2027. Investments themselves are not affected.

Does this affect Cash ISAs? 

No. The new 22% charge does not apply to Cash ISAs. It applies only to cash held inside investment ISAs.

Is cash still worth holding in an investment ISA? 

Yes. Cash can continue to play an important role within an investment ISA, for example while funds are awaiting investment or being used to meet planned withdrawals or charges. Whether this remains appropriate will depend on your individual circumstances and financial objectives.

Should I move my cash into investments? 

Not necessarily. The introduction of the new charge does not automatically mean cash should be invested. Any decision should reflect your objectives, investment timeframe, attitude to risk and wider financial circumstances.

Please note 

This article is for general information only and does not constitute advice. The information is aimed at individuals only. When investing capital is at risk. The value of your investments can go down as well as up, and you may not get back the full amount you invested

Foster Denovo Private Wealth is a trading name of Foster Denovo Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: Foster Denovo Limited, Ruxley House, 2 Hamm Moor Lane, Addlestone, Surrey, KT15 2SA.
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