Key takeaways
- From 6 April 2027 a flat rate charge applies to interest paid on cash held inside a stocks and shares ISA, set at the savings basic rate, which is 22% for 2027 to 2028.
- On £10,000 of ISA cash paying 1.30%, the charge takes £28.60 of £130 of interest. On £30,000 paying 3.75% it takes £247.50 of £1,125.
- A basic rate saver with the £1,000 allowance unused pays £27.50 on that same £1,125 outside any ISA, against £247.50 inside one, a gap of £220.
- A higher rate saver breaks even at £1,050 of interest a year, which needs £28,000 of cash at 3.75% or £80,769 at 1.30%.
- Regulation 22A charges cash deposits only, and money market funds must not be 100% of the non-cash investments held in a stocks and shares ISA.
Cash in a stocks and shares ISA stops being tax free on 6 April 2027
Interest on uninvested cash in a stocks and shares ISA reaches you whole today. Hargreaves Lansdown's rate card says it in one line: "Interest in all ISA and SIPP accounts is paid free from UK income tax."
That stops on 6 April 2027. The Individual Savings Account (Amendment) (No. 2) Regulations 2026 were made on 10 September 2026 and laid before the Commons four days later. They insert a regulation 22A into the 1998 ISA rules, and it does one thing. When interest is paid or credited on a cash deposit held under a stocks and shares component, "no relief from tax applies", and the account manager owes HMRC a flat rate charge instead.
The charge is 22% for the 2027 to 2028 tax year. On £10,000 of cash earning 1.30%, that's £28.60 out of £130 of interest. On £30,000 earning 3.75%, it's £247.50 out of £1,125. You won't get a bill and you don't declare anything. The platform pays HMRC, and your interest arrives net.
What the charge takes at £2,000, £10,000 and £30,000
Two rates matter, and they're a long way apart. The first is what a platform actually pays on uninvested ISA cash. Hargreaves Lansdown pays 1.30% on the first £19,999.99 and 1.65% on the next £80,000, rates in force since 10 June 2026. The second is roughly what cash earns when it's working. Bank Rate stood at 3.75% on 17 September 2026, and the Vanguard Sterling Short-Term Money Market Fund showed a net yield of 3.69% on 31 August 2026, on an ongoing charges figure of 0.12%.
The table runs the stocks and shares ISA cash interest tax at both rates, on one year of interest, with no new subscriptions.
| Cash in the ISA | Interest at the platform rate | 22% charge | Net | Interest at 3.75% | 22% charge | Net |
|---|---|---|---|---|---|---|
| £2,000 | £26.00 | £5.72 | £20.28 | £75.00 | £16.50 | £58.50 |
| £10,000 | £130.00 | £28.60 | £101.40 | £375.00 | £82.50 | £292.50 |
| £30,000 | £425.00 | £93.50 | £331.50 | £1,125.00 | £247.50 | £877.50 |
The £30,000 row straddles two tiers: 1.30% on the first £19,999.99 and 1.65% on the rest, which comes to £425 of interest. Any row scales with the balance, because the charge is a flat proportion of whatever interest arrives.
The platform rate and Bank Rate are 2.45 points apart, and that gap does more to your interest than the charge does. Hargreaves Lansdown is open about where it goes. It "expects to receive interest of between 0.5% below and 0.5% above the prevailing Bank of England base rate" on client cash, and says plainly that "HL retains the difference between the interest HL receives and the interest paid to you". The 22% charge then applies to what is left.
How the stocks and shares ISA cash interest tax is collected
You never touch it. Regulation 22A says "the account manager must pay to the Board a flat rate charge", the Board being HMRC, and gives the manager until six months after the end of the tax year to do it. The factsheet published with the measure is explicit: "individuals are not required to declare to HMRC any interest paid on an ISA."
Three consequences follow, and none of them is obvious from the headline. No allowance applies, because the factsheet states that "The Personal Savings Allowance does not apply to any growth or interest paid in an ISA", so the charge bites from the first penny of interest. You cannot reclaim it either: regulation 22A says "no repayment of tax or amounts representing tax may be made to the account investor". A non-taxpayer pays the same 22% and has no route back. And it lands whatever your income, because it's a charge on the manager rather than income tax on you.
The charge is the savings basic rate, not a number fixed at 22%
Every official summary calls it a flat 22% charge. The regulation doesn't. It says the "flat rate charge" "is charged at the savings basic rate in force for the year under section 7A of ITA 2007", and section 7A, on the statute book since 2016, says only that the savings rates "are the rates determined as such by Parliament for the tax year".
Finance Act 2026 set it for a single year. Section 5 reads: "For the tax year 2027-28 the savings rates of income tax are as follows— (a) the savings basic rate is 22%, (b) the savings higher rate is 42%, and (c) the savings additional rate is 47%." From 2028 to 2029 the charge is whatever the savings basic rate turns out to be. That's what makes the stocks and shares ISA cash interest tax unusual. The number in the headline is a one-year number bolted to a permanent rule, which is also why the tax on savings interest from 2027 and the ISA charge move together.
For a basic rate saver the ISA is now the worse place for cash
Here is the result the 22% headline hides. The charge is set at exactly the savings basic rate, and inside the ISA there's no personal savings allowance. Outside any wrapper, a basic rate saver gets £1,000 of interest tax free. Same rate, one allowance, and the allowance only exists outside.
Run £1,125 of interest, which is £30,000 at 3.75%, through both. Inside the stocks and shares ISA the charge is £247.50. Outside, with the full allowance unused, £1,000 is free and £125 is taxed at 22%, so the bill is £27.50. The ISA costs £220 more for the same cash at the same rate.
That £220 is the ceiling on the damage, because it's 22% of the £1,000 allowance and the allowance can only be lost once. It's also the whole of the effect: there's no band or threshold at which a basic rate saver's cash does better inside the wrapper, because the two rates are identical by construction. Reaching £1,000 of interest takes £26,667 of cash at 3.75%, or £76,923 at the 1.30% a platform pays.
For a saver using the starting rate for savings the gap is wider. Where other taxable income is below £17,570, up to £5,000 of interest is taxed at 0%, tapering by £1 for every £1 of other income above the personal allowance. Inside the ISA that same interest carries 22%, so the wrapper can cost as much as £1,100. On HMRC's statistics the median ISA holder by income sat in the £20,001 to £30,000 band in 2023 to 2024, and the average ISA value in that band was £34,575. That puts a large part of the ISA population in the range where the allowance is worth more than the wrapper.
Higher and additional rate savers cross over at £1,050 of interest
The wrapper still wins for some people, and the breakeven is exact. A higher rate saver pays 42% outside the ISA on interest above a £500 allowance, and 22% inside with no allowance. Those are equal at £1,050 of interest a year. Below it the allowance is worth more than the rate cut; above it the 20 point rate gap takes over.
£1,050 of interest needs £28,000 of cash at 3.75%, or £80,769 at 1.30%. At £30,000 and 3.75% a higher rate saver pays £262.50 outside and £247.50 inside, so the ISA is £15 better on the year. The margin is real and it's small.
An additional rate saver has no allowance to lose and faces 47% outside, so the ISA wins from the first penny of interest. On the same £1,125 the charge saves £281.25. The reform's effect, read across the bands, is to make the ISA a cash wrapper for high earners and a cash penalty for everyone else.
Regulation 22A charges cash deposits, and a money market fund is not one
Two measures arrive together on 6 April 2027, and only one of them is the stocks and shares ISA cash interest tax. Running them together is the commonest error in coverage of this.
Regulation 22A charges interest paid "in respect of a cash deposit which is held under a stocks and shares component", by reference to regulation 6(4) to (6) of the 1998 rules. Regulation 6(4) covers cash a manager holds in sterling and deposits in "an account with a deposit-taker" or in "a deposit account or a share account with a building society". A money market fund isn't that. The same regulations add money market funds to the list of qualifying investments for a stocks and shares component, as an investment rather than as a deposit.
So the money market fund changes to the ISA rules sit in regulation 7, not in 22A, and they work by capping proportion rather than by charging income. That is a drafting fact, not an opening: the 100% rule exists precisely to stop an account being filled with cash-like holdings, and the government "will continue to review the definition of 'Money Market Funds'" as it builds a new regulatory framework.
HMRC's updated manager guidance also isn't published yet. The September 2026 newsletter says only that "We'll publish updated ISA manager guidance before the changes take effect on 6 April 2027." Until that lands, how managers handle a money market fund distribution in practice is not settled on the public record.
The 100% rule and the ISA transfer rules from 2027
Regulation 7 sets the limit in one sentence: "100% of the value of the investments, other than cash, held under the stocks and shares component, must not be money market funds." Note what the test excludes. Cash is out of the denominator, so the test is about the non-cash part of the account, and the restriction doesn't apply to Junior ISAs at all.
What counts as a stocks and shares ISA cash-like asset is drawn narrowly. A money market fund is in, defined by authorisation under Article 4 or Article 5 of Regulation 2017/1131. The factsheet says shares, funds, investment trusts, exchange-traded funds and "corporate and government bonds, including UK gilts, would not be treated as cash-like assets under this measure".
The ISA transfer rules from 6 April 2027 run one way. A stocks and shares or innovative finance account can be transferred to another of those, to a Lifetime ISA, or to "a cash account, if the account investor is 65 or over at the end of the year". Under that age the door is shut, which is why the cash ISA over 65 position differs on both the limit and the transfer.
The objection to all of this, at full strength
The strongest case for the charge is that the alternative was worse, and the government's framing is honest about it. The cash ISA limit cut to £12,000 applies to under-65s from 6 April 2027 while the overall ISA limit stays at £20,000. Without a charge, the obvious response was to put the other £8,000 of cash in a stocks and shares ISA and leave it. The factsheet names that outcome: the rules exist to stop savers who "subscribe up to £20,000 cash in a non Cash ISA and leave it there long-term earning tax-free interest".
Critics of the cut point out that most savers were never affected by it. HMRC's impact note records that in 2022 to 2023, 78% of cash ISA subscribers aged under 65 subscribed less than £12,000 to a cash ISA. On that reading the charge is a complication aimed at a minority. The counter is that the measure reaches stock as well as flow: Adult ISA holdings were worth £952 billion at the end of 2024 to 2025, with 55.8% of that in stocks and shares ISAs, and the charge applies to cash already sitting in those accounts, not only to new subscriptions.
There's a defensible read that the charge barely matters either way. At 1.30%, the charge on a £2,000 holding is £5.72 a year. Anyone whose ISA cash is a settlement balance between trades is arguing about pennies. The charge turns material only where the balance is large or the rate is high, which is the behaviour it was written to discourage.
What these numbers cannot tell you
Start with the rates. The 1.30% and 1.65% are one platform's rate card, in force since 10 June 2026, and platform cash rates move with Bank Rate and with commercial choices nobody publishes. Bank Rate was 3.75% on 17 September 2026, with the next decision due 5 November 2026. Every pound figure above scales with the rate, so what survives a rate change is the method, not the number.
The limitations on the tax side are sharper. The savings basic rate of 22% is legislated for 2027 to 2028 only. The personal savings allowance, the starting rate for savings and the £12,000 cash ISA limit are not indexed, and the comparison between inside and outside the wrapper turns entirely on them. Move the allowance and the £220 gap moves with it.
What the regulations cannot tell you is how managers behave. The technical consultation ran from 25 June 2026 to 2 August 2026, and the government changed the draft in response, including "removing the purpose rules for cash held in non-Cash ISAs". Treatment of a money market fund distribution, and how platforms show net interest on a statement, are practice questions the statute leaves open.
None of it measures the thing that decides the outcome anyway. At 1.30% net of the charge, ISA cash returns 1.014% against inflation of 3.1%, a real shortfall of roughly 2.1 points a year. Set beside that, the charge is a rounding error, and cash drag on an uninvested balance of that size costs more than any of the tax arithmetic above.
What would change the conclusion
If Parliament moves the savings basic rate, the charge moves with it and nobody has to reopen the ISA rules. Regulation 22A names the rate rather than a figure. A savings basic rate back at 20% would cut the charge without touching the allowance, and the gap against a basic rate saver holding cash outside the wrapper would narrow to the allowance alone.
If the personal savings allowance went, the whole comparison inverts. The case against cash in a stocks and shares ISA for a basic rate saver rests on a £1,000 allowance that exists outside the wrapper and not inside it. Remove it and the ISA becomes rate-neutral at 22%, and strictly better for anyone above the basic rate.
If platform cash rates converged on Bank Rate, the charge would start to bite properly. At 1.30% the charge on £10,000 is £28.60; at 3.75% it's £82.50. The measure was written for a world in which cash inside a wrapper earns something close to the policy rate, and platform cash currently doesn't.
The number to watch isn't the 22%. It's your own uninvested balance, and whether it's a position you chose or a residue a trade left behind. LedgerTouch reports that balance continuously and a platform statement reports last month's interest on it; both answer the same question. From 6 April 2027 the answer carries a price, and for most ISA cash that price sits a long way below the £1,050 at which the wrapper starts paying for itself again.