Stocks and Shares ISA reforms: Everything you need to know

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Individual Savings Accounts (ISAs) are valuable tools for building tax-efficient cash or invested wealth.

However, their rules and regulations have undergone a recent shake-up.

As one of her final acts in office, the former Chancellor Rachel Reeves announced a new 22% tax on cash held in a non-Cash ISA. This change complements several others she announced aimed at reducing the UK’s reliance on cash and encouraging more domestic investment.

In this article, we explore:

• The changes happening to ISAs that you need to know about
• How you might be affected
• Three ways you can prepare so you aren’t surprised when the new rules arrive in April 2027.

ISAs allow you to grow tax-efficient wealth

ISAs are effective tax wrappers, as they shield any wealth you gain from interest or investment growth from:

• Income Tax
• Dividend Tax
• Capital Gains Tax (CGT)

This “tax wrapper” extends up to an annual subscription limit of £20,000, meaning you can deposit up to this amount each tax-year. However, this limit is reducing for Cash ISAs (more on this later).

This limit applies across all ISAs held in your name. As of the 2026/27 tax-year, there are four types you can take advantage of:

• Cash
• Stocks and Shares
• Innovative finance
• Lifetime (contributions are capped at £4,000 annually)

Junior ISAs, which you can open and deposit into on your child or grandchild’s behalf until they can access them as adults, are available for under-18s. JISAs also have a reduced limit of £9,000 a year.

The Treasury has introduced new ISA rules to reduce the UK’s reliance on cash

When the former Chancellor Rachel Reeves took her place in the cabinet, her position leaned heavily towards increasing investment in the UK.

As part of this effort, Reeves aimed to make investing a more appealing option compared to cash savings. This has materialised through two major rules imposing limits on Cash ISAs and cash held in Stocks and Shares ISAs.

1. A reduction in the subscription limit for Cash ISAs to £12,000

In the 2025 Autumn Budget, Reeves announced that the Cash ISA limit would be changing from £20,000 to £12,000, reducing the amount of tax-efficient interest you can gain from Cash ISAs by 40%.

However, the subscription limit for other ISAs, like Stocks and Shares, remains at £20,000.

This rule is set to come into effect from April 2027 and will only apply to those aged 64 and under. Those aged 65 and over still have access to the full £20,000 Cash ISA limit.

A consultation taking place in 2026 will determine specific dates of birth for those who can continue to take advantage of the full Cash ISA limit.

2. A 22% tax charge on cash held in non-Cash ISAs

Savers who hold cash inside Stocks and Shares ISAs will be charged 22% on any interest they gain from that cash as of April 2027.

This change closes a potential loophole which would allow individuals to take advantage of the £20,000 ISA limit for cash within a Stocks and Shares ISA instead, once the Cash ISA limit is reduced.

Note that the 22% tax is applied to interest earned, NOT the cash balance itself.

For example, if you earned £400 interest from cash holdings equalling £10,000, this means you would gain £312, and £88 would be paid to HMRC by your ISA manager.

3 ways you can prepare for the new rules

1. Take advantage of the Cash ISA limit before it reduces (so long as that is the right decision for you)

The new rules are due to pass into law in April 2027.

This gives savers plenty of time to take advantage of this tax-year’s annual subscription amount of £20,000 before it disappears for good.

However, whether you should is a different question entirely.

Cash savings are valuable for short- and medium-term goals such as paying for a holiday, buying a car, or renovating your home.

However, if your goals are long-term focused, then it might be sensible to invest this money instead. Investing offers greater opportunity for growth, which can help you outpace inflation and see higher returns.

Consider your goals before you decide to use up your remaining Cash ISA allowance. If you’re confused, professional advice can help you make the right decision.

2. Check whether you are holding cash in your Stocks and Shares ISA

You may have accrued cash in your Stocks and Shares ISA for several reasons:

• Selling recent investments
• Receiving a dividend
• Paying in a new contribution which has yet to be invested.

Often, you might be holding cash without even knowing it.

You can check your ISA by logging in to your online account and reviewing your fund allocation. Normally, it will tell you whether you are holding any uninvested cash and how much.

For any cash held in a non-Cash ISA, the interest gained will be subject to the 22% charge from April 2027. It’s important that you find other ways to store this cash to remain tax-efficient. A financial planner can help you discover your options.

3. Reach out to a Kellands financial planner

Navigating the changing tax and ISA landscape can be tricky, especially in the face of an uncertain future with a cabinet reshuffle and a new Prime Minister in Andy Burnham.

In times like these, professional advice can help you navigate the future with certainty and confidence.

Our award-winning team is here to help you uncomplicate ISAs so that you can effectively use them to grow your wealth while limiting your tax exposure.

We can also help you strike a healthy balance between wealth held in Cash ISAs and Stocks and Shares ISAs, tailored to you, your goals, and your expectations for the future.

Email us at hale@kelland.co.uk, or call 0161 929 8838 to get started.