Stocks & Shares ISA Interest Tax

Starting April 6, 2027, the UK Government is introducing an anti-circumvention flat-rate tax of 22% on any interest earned on cash balances held within Stocks & Shares ISAs or Innovative Finance ISAs. This is designed to prevent savers from bypassing the new £12,000 Cash ISA cap by holding their cash inside investment accounts. The tax is paid directly by the ISA managers to HMRC and does not need to be declared by the individual on their tax return. Under HMRC anti-circumvention rules, Money Market Funds (MMFs) cannot constitute 100% of a Stocks & Shares ISA—savers must hold at least one genuine qualifying investment alongside the MMF to remain compliant.

Real-World Example James holds £15,000 cash in his Stocks & Shares ISA earning 4.2% interest (£630 annually). Starting April 2027, his ISA provider automatically deducts a 22% tax on the £630 interest, withholding £138.60 and remitting it to HMRC. James receives only £491.40 net interest. He does not need to report this on his tax return, as the ISA manager handles the tax settlement. To avoid this tax, James must invest the £15,000 in stocks, bonds, or funds rather than holding it as cash.