Savers trying to get around the new lower limit for cash ISAs are being warned after HM Revenue and Customs announced new rules aimed at stopping them. Currently, people can save up to £20,000 annually in cash ISAs, stocks and shares ISAs, or a mix of both.
But Chancellor Rachel Reeves announced in the Budget that, from April 2027, the annual adult cash ISA limit will be slashed to £12,000. Only the over-65s will retain the full £20,000 annual cash ISA allowance.
While the total tax-free limit remains £20,000, the Chancellor wants the remaining £8,000 invested in the stock market to help boost Britain’s sluggish economy.
After the Chancellor unveiled the plan, experts said savers could simply open a stocks and shares ISA and deposit the £8,000 in it as cash, instead of buying shares.
HMRC has since published guidance on its website which says rules will be introduced “to avoid circumvention of the lower limit for cash ISAs”.
The rules will include charges on interest paid on cash held in stocks and shares ISAs, and tests to determine whether money is being held in “cash-like” accounts.
The guidance said rules to avoid circumvention of the lower cash limit will include no transfers from stocks and shares and Innovative Finance ISAs to cash ISAs.
There will also be tests to determine whether an investment is eligible to be held in a stocks and shares ISA or is “cash like”.
Charges could also be applied on any interest paid on cash held in a stocks and shares or Innovative Finance ISA. HMRC said the rules will apply to investors under the age of 65.
The guidance stated that the industry will be consulted on the draft legislation, which will be developed through amendments to the ISA regulations and laid before Parliament well in advance of April 2027.
Earlier this week, Jason Hollands, managing director of online investment platform Bestinvest by Evelyn Partners, raised concerns there were “unanswered questions” about how the reduced cash ISA limit would work in practice.
He said previously that an issue to consider was whether cash savers with more than £12,000 to shelter may open a stocks and shares ISA with the excess and leave their money parked in cash.
Speaking on Friday, Mr Hollands said: “Levying a charge on cash held within stocks and shares ISAs is yet another stealth tax that 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 said the tests to determine whether eligible investments are cash-like “will throw doubt about access to money market funds within stocks and shares Isas and could even bring short-dated bonds into question”.
Mr Hollands also raised concerns that while “we will have to wait for more details” about how exactly the rules would work, if fees ended up being levied on stocks and shares ISA managers, based on their total client cash balances, this “would clearly require them to pass on this cost as an account fee”.