Cash in a Stocks and Shares ISA: What the New 22% Tax From April 2027 Means (2026)

Here's the short version. From 6 April 2027, any interest paid on cash you leave sitting inside a stocks and shares ISA will face a flat 22% charge. That is the new tax on cash in a stocks and shares ISA, confirmed by HMRC on 23 June 2026.

It does not touch your shares, funds or ETFs. Only the interest on uninvested cash is caught. And it does not touch a normal Cash ISA, where interest stays tax-free.

So the fix is simple. Either put idle cash to work, or keep the cash you want as cash in a Cash ISA.

TL;DR

• From 6 April 2027, interest on uninvested cash inside a stocks and shares ISA faces a flat 22% charge (source: GOV.UK/HMRC).
• Your investments — shares, funds, ETFs, bonds, gilts — are not affected. Gains and dividends inside the ISA stay tax-free.
• A Cash ISA is not affected. Interest there is still tax-free.
• What to do: invest the money you meant to invest, and keep pure cash in a Cash ISA — not idle inside your investment ISA.

What is the new tax on cash in a stocks and shares ISA?

On 23 June 2026, HMRC published a factsheet setting out new ISA rules for April 2027. One of them is a flat-rate 22% charge on "any interest or alternative finance return paid on cash held within a non-Cash ISA".

In plain English: a stocks and shares ISA is a "non-Cash ISA". If you leave cash in it and that cash earns interest, 22% of the interest goes to HMRC.

This is not a random grab. It comes bundled with the Cash ISA allowance cut. From 6 April 2027, under-65s can pay only £12,000 a year into a Cash ISA, down from £20,000. The overall ISA limit stays at £20,000.

The worry was that people would dodge the smaller Cash ISA limit by dumping £20,000 of cash into a stocks and shares ISA and just leaving it there, tax-free. The 22% charge is designed to close that door.

One honest caveat. The rules are still going through a technical consultation, with regulations due to be laid in autumn 2026. The headline — 22%, from 6 April 2027 — is confirmed. Some of the fine detail on how it is collected may still shift, so treat the exact mechanics as "close to final, not final".

What gets taxed — and what doesn't

This is where people panic unnecessarily. The charge is narrow. It only bites on interest paid on cash.

Caught by the 22% charge:

• Interest on uninvested cash sitting in your stocks and shares ISA (or an Innovative Finance ISA).

Not caught — nothing changes here:

• Shares, funds, investment trusts and ETFs.
• Corporate bonds and government bonds, including UK gilts.
• Capital gains and dividends inside the ISA. Still tax-free.

There is one more wrinkle. From April 2027, HMRC will treat money market funds as "cash-like". You can still hold some, but your ISA cannot be 100% cash-like assets. In other words, you cannot rebuild a cash pot by stuffing your investment ISA full of money market funds. A diversified portfolio with a slice of cash-like exposure is fine.

Common holdings — shares, ordinary funds, ETFs, gilts — are explicitly not treated as cash-like.

Who does the 22% charge affect?

Pretty much everyone with cash in an investment ISA. The charge applies regardless of your age or your income tax band. Even if you are a non-taxpayer, the 22% still applies to interest on cash inside a stocks and shares ISA.

Over-65s get one break elsewhere: they keep the full £20,000 Cash ISA allowance, and the ban on transferring from an investment ISA into a Cash ISA is lifted for them. But the 22% charge on cash interest still applies to them too.

So this is not just a "wealthy investor" problem. Holding some cash inside an investment account is completely normal. People leave money there between trades, after selling a holding, or to cover fees. Small balances, short spells — most people will barely notice. Large idle balances are where it stings.

How this is different from the Cash ISA cut and the savings-interest tax

Three different things are in the news, and they get muddled constantly. Let's untangle them.

1. The Cash ISA allowance cut. From April 2027, under-65s can pay in £12,000 a year, not £20,000. That's about how much you can shelter, not a new tax. I cover it in full in my guide to the Cash ISA allowance cut for 2027.

2. Tax on savings interest outside ISAs. If you hold savings in a normal (non-ISA) account, interest above your Personal Savings Allowance is taxed at your income tax rate. That's an existing rule, not the new one. See tax on savings interest in 2026-27.

3. This piece — the 22% charge on cash inside a stocks and shares ISA. A brand-new, flat 22% charge on interest from uninvested cash held within an investment ISA.

Here's the same idea as a table.

The key takeaway: a Cash ISA is the tax-free home for cash. A stocks and shares ISA is the tax-free home for investments. Mixing them up is what the new rule punishes.

What this means for you — and what to do

You have until 6 April 2027, so there is no need to rush. But here is how I'm thinking about it.

Invest the money you meant to invest. If cash has been drifting in your stocks and shares ISA "waiting for the right time", this is a nudge to actually deploy it — for example into a low-cost global index ETF. Idle cash was already a drag; now it may carry a charge too.

Keep only a small cash buffer inside your investment ISA. A little cash for fees or between trades is normal and fine. A five-figure cash pile parked there for a year is the thing to avoid.

Use a Cash ISA for money you want to keep as cash. Emergency fund, house deposit, short-term savings — that belongs in a Cash ISA, where interest stays tax-free, not idle in an investment ISA.

Check how your platform holds spare cash. Some pay you interest on uninvested cash; some sweep it into a money market fund; some pay nothing at all. Each is treated differently under the new rules, so it's worth knowing which one you're on.

Watch for the final detail. The exact mechanics land with the autumn 2026 regulations. I'll update this piece when they do.

How to get started

If you want to tidy this up before April 2027, here's a simple order to do it in.

1. Split your money into two buckets: invest vs. keep as cash. Be honest about which is which. Money you'll need within a couple of years is usually cash; money you can leave for five years-plus can be invested.

2. For the cash bucket, use a Cash ISA so the interest stays tax-free. Trading 212 offers a flexible Cash ISA. Its standard rate tracks the Bank of England base rate minus 0.15% — so with the base rate at 3.75% (held on 18 June 2026), that's around 3.6% AER variable, with a higher promotional rate for new customers (4.51% AER as of 22 July 2026, MoneySavingExpert). Rates move with the base rate, so check the live number before you apply. Trading 212 is FCA-regulated; confirm the current terms for how your cash is held and protected.

3. For the invest bucket, use a low-cost Stocks & Shares ISA. InvestEngine offers a Stocks & Shares ISA with no platform fee and no ISA fee, and DIY ETF portfolios are commission-free — you only pay the underlying ETF cost, which starts from around 0.03% a year (source: InvestEngine Costs page). It's a tidy way to get idle cash actually invested. New to ETFs? Start with my guide to the best ETFs for beginners in the UK. One honest note: InvestEngine keeps the interest on any uninvested cash, so don't use it to park cash — invest it, or keep cash in a Cash ISA.

4. Don't leave a big cash balance idle in your investment ISA past April 2027. That's the exact situation the 22% charge is built for.

Still deciding which app to use? My best investing apps UK 2026 roundup compares the main options.

FAQ

Do I pay 22% tax on my whole stocks and shares ISA? No. Only on the interest from uninvested cash. Your shares, funds, ETFs, bonds and their gains and dividends are unaffected and stay tax-free.

Is a Cash ISA affected by the 22% charge? No. A Cash ISA is a "Cash ISA", not a "non-Cash ISA". Interest inside it remains tax-free. The 22% charge only hits cash held inside an investment (non-Cash) ISA.

How much cash can I hold in a stocks and shares ISA? There's no ban on holding cash. But from April 2027, interest on that cash is charged at 22%, and your ISA can't be made up entirely of cash-like assets such as money market funds. The exact detail is still being finalised in regulations due in autumn 2026.

When does the 22% charge start? 6 April 2027, according to HMRC's June 2026 factsheet. Regulations are due to be laid in autumn 2026.

Should I move my cash out of my investment ISA now? There's no deadline panic — the charge starts in April 2027. But it's a good prompt to either invest that cash or move it to a Cash ISA, where interest stays tax-free.

Why is the government doing this? To stop people sidestepping the smaller £12,000 Cash ISA limit by holding cash in a stocks and shares ISA instead. It's an "anti-circumvention" rule.

This is general information, not financial advice. Rates and rules are current as of July 2026 and can change — always check the provider's or gov.uk's website before you act. Investing puts your capital at risk; you may get back less than you put in. Do your own research and consider speaking to a qualified adviser about your situation.

Last updated: 26 July 2026.