ISA investors in the UK are being warned about a planned 22pc charge on interest earned from cash held inside Stocks and Shares ISAs. The key point is narrow but important: this is not a general tax on ISA investments, and it does not apply to ordinary Cash ISAs under today’s rules. It is aimed at stopping people from using an investment ISA mainly as a cash savings account once tighter Cash ISA limits arrive.

What is changing?

At present, ISA rules are simple in principle. An adult can save or invest up to 20,000 GBP into ISAs in the 2026 to 2027 tax year, and returns inside the ISA wrapper are generally sheltered from UK Income Tax and capital gains tax. According to HMRC, ISAs allow people to save tax-free, and the main adult ISA types include Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs and Lifetime ISAs (HMRC, 2026).

The proposed 22pc charge is different. It would apply to interest, or similar cash returns, on uninvested cash sitting inside a Stocks and Shares ISA from April 2027. The Guardian reported that the charge is intended to prevent savers from using Stocks and Shares ISAs as a route around new limits on Cash ISA saving (The Guardian, 2026).

That means shares, funds, investment trusts, ETFs and gilts inside a Stocks and Shares ISA are not the target of the reported measure. The focus is cash interest inside an investment wrapper.

Who could be affected?

The change matters most if you keep a large cash balance in a Stocks and Shares ISA for more than a short period. That might happen because you sold investments and have not reinvested, you are drip-feeding into funds, you are waiting for markets to settle, or you use the account as a high-interest cash pot.

Small temporary cash balances may still be part of normal investing. Many investors keep some cash available for fees, pending trades or staged purchases. The potential problem is using a Stocks and Shares ISA primarily for cash when the policy direction is to push long-term cash saving back into Cash ISAs or ordinary savings accounts.

MoneySavingExpert explains that Stocks and Shares ISAs are investment accounts, and that investments can rise or fall in value (MoneySavingExpert.com, 2026). That distinction matters: cash is lower volatility, but it is not the same as investing for long-term growth.

Does the personal savings allowance help?

Not for the planned 22pc charge, based on the reported details. The personal savings allowance applies to taxable savings interest outside ISAs. According to HMRC, basic-rate taxpayers can receive up to 1,000 GBP of savings interest tax-free, higher-rate taxpayers can receive up to 500 GBP, and additional-rate taxpayers receive no personal savings allowance (HMRC, 2026).

A flat 22pc charge inside a Stocks and Shares ISA would be separate from that normal savings tax system. It would also be unusual because ISA income is normally tax-free when the rules are followed.

What should investors check now?

First, check whether your Stocks and Shares ISA holds a meaningful cash balance. Look at cash, uninvested dividends, pending transfers and any cash management feature used by your platform.

Second, separate short-term cash from long-term investing money. If the money is for an emergency fund, a house deposit or near-term spending, a Cash ISA or easy-access savings account may be more suitable. If it is for long-term investing, decide whether and when to invest it, rather than leaving it idle by default.

Third, check your platform’s current terms. Providers may change how they pay interest on cash as the April 2027 rules approach. Product terms, rates and charges are current only as of June 2026; verify current terms with the provider or an FCA-authorised adviser before deciding.

The bottom line

The 22pc figure is best understood as a proposed anti-avoidance charge on cash interest inside Stocks and Shares ISAs, not a general tax on ISA investing. The practical message is simple: do not use an investment ISA as a long-term cash account without checking the rules, the platform rate and the tax treatment.

This article is general financial education, not regulated financial advice. Nexzoe is not authorised by the FCA. Tax rules and ISA allowances can change each tax year, so check HMRC guidance and consider speaking to an FCA-authorised Independent Financial Adviser or qualified tax adviser for your personal situation.