Do new Isa rules mean I have pay tax?

Savers under 65 will face a £12,000 annual cap on cash Isa contributions from the 2027-28 tax year, alongside a new 22% charge on interest earned on uninvested cash held in stocks and shares Isas, according to HM Revenue and Customs rules outlined this week.

The changes, reported by the Guardian^[1][2], mean the current £20,000 overall Isa allowance remains, but how it can be distributed will shift. Those under 65 will be limited to saving £12,000 a year in a cash Isa, while those aged 65 and over can continue to put the full £20,000 into a cash Isa^[1][2]. Any sum above the £12,000 limit must go into a non-Isa savings account or a stocks and shares Isa^[1][2].

HMRC also plans to apply a 22% charge on any interest paid on the cash component of a stocks and shares Isa^[1][2]. This charge will apply to any sum held in the cash element of the account, even if the saver has not breached the new £12,000 cash Isa limit, and it will also affect over-65s^[1][2]. The charge is set at 22% for all investors, not at their usual marginal income tax rate, and will be paid to HMRC by the provider^[1][2].

Investors will not be allowed to use their personal saving allowance to shield money from the 22% charge^[1][2]. Basic-rate taxpayers currently have a £1,000 annual allowance and higher-rate taxpayers have £500, but HMRC has confirmed these cannot offset the new charge^[1][2].

A further restriction will prevent those under 65 from transferring money from a stocks and shares Isa into a cash Isa, closing a route that would allow someone to put £20,000 into a stocks and shares Isa and then quickly move it into cash^[1][2]. HMRC has also introduced a new limit on money market funds, stating that investors cannot hold 100% of their stocks and shares Isa in this type of product, regardless of age^[1][2].