Savers warned they face penalties for moving money as Reeves closes ‘loophole’ in hidden Budget raid

SAVERS have been hit with a stark warning that they face penalties for moving their own money around as the Chancellor prepares to clamp down on ISA rules.

Fresh details from HM Revenue and Customs (HMRC) reveal a “stealth tax” crackdown is on the way to stop Brits from dodging Rachel Reeves’ drastic cut to the tax-free cash limit.

In a move branded a “hidden Budget raid”, the Government is introducing strict new measures to prevent savvy savers from using Stocks and Shares ISAs to hide their cash.

Currently, you can stash up to £20,000 a year into any type of ISA – Cash, Stocks and Shares, or a mix – without paying a penny in tax on the interest or returns.

But under plans announced in the Budget, the annual allowance for Cash ISAs will be slashed to just £12,000 for anyone under the age of 65, starting from April 2027.

While the total tax-free limit remains at £20,000, the Government wants the remaining £8,000 forced into the stock market to help boost the UK economy.

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The ‘loophole’ lockdown

Experts have been quick to spot a potential workaround to the new rules.

They say savers could simply open a Stocks and Shares ISA, deposit the extra £8,000, but leave it sitting there as cash rather than buying risky shares.

However, HMRC is now moving quickly to shut this down.

Guidance published on the taxman’s website confirms that strict rules will be introduced “to avoid circumvention of the lower limit for cash ISAs.”

For example, if you are under 65 and have already hit the £12,000 cash cap, you will not be allowed to transfer more from a Stocks and Shares ISA or an Innovative Finance ISA back into a Cash ISA.

Plus, if you try to use an investment ISA as a place to park cash, any interest earned on that cash could be hit with penalties or charges.

The Government is also bringing in a “cash-like” test to decide whether what you hold in a Stocks and Shares ISA is a genuine investment or essentially a disguised savings pot, and anything that fails could face restrictions or extra charges.

‘Another stealth tax’

Jason Hollands, managing director of investment platform Bestinvest by Evelyn Partners, has warned that the move creates “unanswered questions” and could punish genuine investors.

He slammed the decision to levy charges on cash held within investment ISAs.

Mr Hollands said: “While it is no surprise they are going to take action… levying a charge on cash held within stocks and shares ISAs is yet another stealth tax.

“This will impact genuine investors who sometimes decide to park money in cash for a period of time awaiting investment, or because they are nervous about the market environment.”

He also warned that the new “tests” on what counts as an investment could cause chaos for those holding money market funds or short-dated bonds.

Mr Hollands added that if ISA providers are hit with fees based on how much cash their clients hold, they will likely pass that pain on to you.

“This would clearly require them to pass on this cost as an account fee,” he said.

The silver lining for pensioners

There is one group protected from the raid.

The Government confirmed that over-65s will retain the full £20,000 annual Cash ISA allowance.

This means pensioners can continue to keep all their tax-free savings in safe, interest-bearing cash accounts without being forced to risk their capital in the stock market.

However, for everyone else, the message from the Chancellor is clear – if you want the full £20,000 allowance, you have to be willing to invest.