Cash inside a Stocks and Shares ISA: the 22% charge
From 6 April 2027, a flat 22% charge applies to interest, or the equivalent alternative finance return, earned on cash held inside a Stocks and Shares or Innovative Finance ISA, whatever your age. Only money market funds can still count as a cash-like holding, and only as part of your ISA, never all of it.
The short answer
- A 22% charge applies to interest on cash parked inside a Stocks and Shares or Innovative Finance ISA, from 6 April 2027, at every age.
- The only cash-like asset still allowed inside a non-cash ISA is a money market fund, and it cannot make up the whole account.
- This is separate from the £12,000 Cash ISA cap. It targets people who might otherwise hold cash inside an investment wrapper to get around the new limit.
- Actual investments, such as funds, shares and bonds, are not affected. Only cash and cash-like holdings inside the wrapper are in scope.
What is the 22% charge on cash in a Stocks and Shares ISA?
From 6 April 2027, a flat-rate charge of 22% applies to any interest, or the equivalent alternative finance return, paid on cash held inside a Stocks and Shares ISA or an Innovative Finance ISA. It applies whatever your age, and however small or large the cash balance is. This sits alongside the £12,000 Cash ISA cap for under-65s, but it is a separate rule with its own scope: it is about where cash sits, not how much of it you hold in a dedicated Cash ISA.
The 22% charge, at a glance
- Charge on interest from cash in a non-cash ISA
- 22%
- From 6 April 2027, all ages
- Cash-like assets still allowed
- Money market funds only
- Partial holding only
- Applies to
- Cash inside Stocks and Shares or IFISAs
- Not actual investments
Why is this rule being introduced?
The £12,000 Cash ISA cap only controls money paid directly into a Cash ISA. Without a further rule, someone could simply hold a large cash balance inside a Stocks and Shares ISA instead, where the £20,000 limit still applies in full, and get the same tax-free result as putting it in cash. HMRC’s anti-circumvention factsheet describes this as one of three linked measures designed to close that gap, alongside the cash-like asset limit below and the block on transfers from non-cash into Cash ISAs.
What counts as a cash-like asset now?
From 6 April 2027, money market funds are the only cash-like asset that can sit inside a Stocks and Shares or Innovative Finance ISA. And they can only make up part of the account: a non-cash ISA can no longer be 100% cash-like. If you hold a money market fund inside your Stocks and Shares ISA today, this is the rule to watch: check with your platform on how it plans to apply the partial-allocation limit and the 22% charge once the rule takes effect.
Why do people hold cash inside a Stocks and Shares ISA anyway?
There are ordinary, non-tax-driven reasons for it. Investors often hold cash briefly while deciding what to buy, after selling something and before reinvesting, or as a deliberate small buffer within an otherwise invested portfolio. None of that is new, and none of it is the target of this rule on its own. What the rule targets is cash sitting there indefinitely as a substitute for a Cash ISA, once the Cash ISA route is capped at £12,000 for under-65s.
What this looks like in practice
Take someone holding £15,000 in cash inside a Stocks and Shares ISA, earning interest at whatever rate their platform pays on uninvested cash. From 6 April 2027, 22% of that interest is charged, in the same tax year it is earned, regardless of whether they are a basic, higher or additional rate taxpayer elsewhere. That is a flat rate specific to this rule, not their normal Income Tax band. On top of that, from the same date, that £15,000 can no longer sit as plain cash: it would need to be in a money market fund to qualify as a cash-like holding at all, and it could not be the only thing in the account.
Does this apply if you are 65 or over?
Yes, in full. The age-65 exemption in the 2027 reform is narrow: it raises the Cash ISA limit back to £20,000 and lifts the block on transferring from a Stocks and Shares or Innovative Finance ISA into a Cash ISA. It does not touch the 22% charge or the cash-like asset limit, both of which HMRC’s Newsletter 22 explicitly says “will remain in place” regardless of age. See the Cash ISA limit for over 65s for what does and does not change with age.
What is not affected
This rule is narrow by design. It does not change how funds, shares, bonds or other genuine investments held inside a Stocks and Shares ISA are taxed; those stay exactly as tax-free as they are today. It also does not touch cash inside an ordinary Cash ISA, which is what the separate £12,000 cap is for. The 22% charge and the money-market-fund limit apply only to cash and cash-like holdings sitting inside a non-cash ISA wrapper.
What ISA managers have to do
The anti-circumvention factsheet also puts new reporting obligations on ISA providers, not on savers directly. Providers will have to report the market value of cash-like holdings through the end-of-year statistical return they already submit to HMRC, so the charge can be tracked and applied correctly across the industry. In practice, this is likely to show up as a new line on annual ISA statements from Stocks and Shares and innovative finance providers, separating cash and cash-like holdings from genuine investments, in a way most platforms have not needed to do before.
Questions people ask
Why is the government charging interest on cash inside a Stocks and Shares ISA?
To stop the £12,000 Cash ISA cap being sidestepped by holding cash inside an investment wrapper instead. Without a charge, someone could keep large cash balances inside a Stocks and Shares ISA and get the same tax-free result as before.
Does the 22% charge apply if I'm 65 or over?
Yes. The age-65 rule lifts the £12,000 Cash ISA cap and the transfer block, but the 22% charge on cash inside a non-cash ISA applies at every age, including 65 and over.
What counts as 'cash-like' inside a Stocks and Shares ISA from 2027?
Only money market funds. They can make up part of a non-cash ISA, but not all of it; a Stocks and Shares or Innovative Finance ISA cannot be 100% cash-like from 6 April 2027.
Does this affect money I hold in funds, shares or bonds?
No. The charge and the cash-like asset limit apply only to cash and cash-like holdings. Ordinary investments inside a Stocks and Shares ISA are not affected.
How is the charge actually collected?
gov.uk's factsheet describes a flat-rate charge on the interest or alternative finance return paid on the cash, rather than a change to how the investments themselves are taxed. ISA managers will also have to report cash holdings through their existing end-of-year statistical return.
Should I move cash out of my Stocks and Shares ISA before April 2027?
That depends on why you are holding it there and what you would do with it instead. This page explains the rule so you can weigh that up; it is not a recommendation either way.