The Government spotted a loophole and closed it. Some savers were opening Stocks & Shares ISAs but keeping 100% in cash: collecting tax-free interest without any actual investment. From April 2027, that strategy dies.
The new rule: any interest paid on cash balances sitting inside a Stocks & Shares or Innovative Finance ISA wrapper is taxed at a flat 22%. The ISA manager (your platform) deducts this automatically before paying you, no self-assessment needed.
Who this actually hits
- People using S&S ISAs as glorified savings accounts (holding cash "waiting for the right moment")
- Platform cash buffers: most S&S ISA platforms hold uninvested cash earning interest
- Tactical cash positions: investors who sold stocks and parked proceeds in cash within the ISA
Who it does NOT hit
- Cash ISA accounts (those are specifically for cash — taxed at 0% up to the £12K cap)
- Actual investments (dividends, capital gains within S&S ISAs remain 100% tax-free)
- Cash ISA savers over 65 (exempt from the cap entirely)
Practical impact
If you hold £30,000 in cash inside your S&S ISA earning 4%:
- Annual interest: £1,200
- 22% tax: £264/year deducted automatically
- Net interest received: £936
The message is clear: deploy your S&S ISA into actual investments (stocks, bonds, funds) or move the cash to your Cash ISA where it remains tax-free up to £12K.
