A recent update will introduce a new fee on interest gained from cash investments in stocks and shares ISAs starting next year. This levy aims to prevent savers from circumventing the new annual cash ISA limit reduction for under-65s from £20,000 to £12,000 set to take effect in April 2027. However, individuals aged 65 and over will maintain their £20,000 cash ISA allowance.
Despite the cash ISA limit adjustment, under-65s will still have an overall £20,000 ISA cap, allowing them to potentially allocate £12,000 to a cash ISA and the remaining £8,000 to another ISA category. The government justifies these modifications as a means to encourage investment, maintaining the £20,000 limit for other ISAs like stocks and shares ISAs and innovative finance ISAs.
HMRC’s newly released factsheet confirms a 22% charge on interest from cash in stocks and shares ISAs. Additionally, savers will no longer be permitted to hold their entire non-cash ISA portfolio in Money Market Funds, which invest in short-term debt securities. The revised regulations also prohibit transferring funds from a non-cash ISA to a cash ISA after depositing £20,000.
HMRC will initiate a technical consultation with the industry on the draft legislation soon, with regulations expected to be enacted in the autumn. Industry experts have expressed concerns about the potential impact of these changes, with some fearing that the alterations might deter individuals from investing rather than promoting it.
For instance, Simon Harrington from the Personal Investment Management and Financial Advice Association remains skeptical about the effectiveness of the changes, suggesting they could make stocks and shares ISAs less appealing to consumers. Andrew Gall from the Building Societies Association emphasized the importance of clear information and sufficient time for savers to comprehend the implications of the reforms.
Andrew Prosser from InvestEngine echoed similar sentiments, expressing apprehension that the complexity introduced by the changes may discourage savers from engaging in investment opportunities. Prosser emphasized the need for enhanced financial education and accessibility to foster a stronger investment culture in the UK.
