A new fee will apply to interest earned on cash held in stocks and shares ISAs starting next year. This charge aims to prevent savers from circumventing the new cash ISA limit reduction, which will decrease the annual cash ISA limit for individuals under 65 from £20,000 to £12,000 as of April 2027. However, the cash ISA allowance for individuals aged 65 and above will remain at £20,000.

Despite the reduced cash ISA limit, individuals under 65 will still have an overall £20,000 ISA limit. This means savers could potentially invest £12,000 in a cash ISA and allocate the remaining £8,000 to another type of ISA.

The government states that these adjustments aim to encourage investment, with the limit for other ISAs such as stocks and shares ISAs and innovative finance ISAs staying at £20,000.

A recently released factsheet on the HMRC website confirms a 22% levy on interest earned from cash within stocks and shares ISAs. Additionally, savers will no longer be permitted to hold their entire non-cash ISA portfolio in Money Market Funds.

Furthermore, individuals are restricted from depositing £20,000 into a non-cash ISA and later transferring those funds to a cash ISA. HMRC will initiate a technical consultation with the industry on the draft legislation, with regulations scheduled to be implemented in the fall.

Simon Harrington, from the Personal Investment Management and Financial Advice Association, expressed skepticism about the potential impact of these changes on consumer investment behavior. Andrew Gall, head of savings at the Building Societies Association, emphasized the importance of clarity and understanding for savers regarding the upcoming Isa reforms.

Meanwhile, Andrew Prosser, head of Investments at InvestEngine, highlighted concerns that the new regulations could deter people from investing. He stressed the need for improved financial education and accessibility to foster a healthier investment culture in the UK.