New 22% Tax on Cash ISAs: What You Need to Know
The HMRC has announced a new 22% tax on cash interest held in stocks and shares ISAs, impacting savers significantly. Discover how these changes affect your savings strategy and what alternatives are available.
Major Changes to ISAs
The recent announcement by HMRC introduces a 22% tax on cash interest earned within stocks and shares ISAs, a significant shift for savers. This change is part of a broader reform aimed at encouraging investment in stocks rather than cash savings. Starting April 2027, individuals under 65 will face a reduced annual contribution limit of £12,000 for cash ISAs, down from £20,000.
In addition to the tax, the government is launching a new first-time buyer ISA with no upper age limit, recognizing the trend of older individuals purchasing their first homes. This account will still offer a government bonus of 25% upon property purchase, but with revised withdrawal penalties, making it more flexible for savers.
- Key points of the new ISA reforms include:
- Introduction of a 22% tax on cash interest in stocks and shares ISAs.
- New first-time buyer ISA available for anyone over 18.
- Reduced cash ISA limit for under-65s to £12,000.
- Removal of the 25% penalty for early withdrawals from the new ISA.