Where to Hold Cash in a Stocks & Shares ISA After April 2027 (Money Market Funds Explained)

From 6 April 2027, any interest paid on plain cash sitting in your Stocks and Shares ISA will be hit with a 22% charge, taken automatically by your ISA provider (source: GOV.UK/HMRC, 23 June 2026). The one place cash-like money can still sit without the charge is a money market fund (MMF) — a low-risk fund that isn't legally "cash" in HMRC's eyes, provided it's not the only thing in your ISA. In short: from April 2027, stop leaving spare cash sitting in your Stocks and Shares ISA and either invest it properly, move it to a Cash ISA, or hold it in a money market fund instead.

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TL;DR

• From 6 April 2027, HMRC will charge 22% on interest earned on cash held inside a Stocks and Shares ISA or Innovative Finance ISA — deducted by your ISA manager, not something you declare yourself (source: GOV.UK factsheet, 23 June 2026).
• Money market funds (MMFs) are exempt from the 22% charge, but under the new "anti-circumvention rules" they'll be the only asset class allowed to count as a cash-like holding — and they can't make up 100% of your non-cash ISA.
• The Cash ISA allowance for under-65s is being cut to £12,000 from 6 April 2027 (down from £20,000), and transfers from a Stocks and Shares ISA into a Cash ISA will no longer be allowed for under-65s.
• Bank of England base rate is 3.75% as of 30 July 2026, and MMF yields tracked close to it — typically 3.6%–4.0% — across major UK platforms in mid-2026.

What's actually changing in your Stocks and Shares ISA

We've covered the mechanics of the 22% charge itself in detail in our piece on the cash-in-a-Stocks-and-Shares-ISA tax change, so we won't repeat all of it here. The short version, confirmed by HMRC's own factsheet published 23 June 2026 and last updated 20 July 2026:

• The charge applies to interest paid on cash held inside a non-cash ISA (Stocks and Shares ISA or Innovative Finance ISA). Your ISA manager pays it to HMRC directly — you don't declare it yourself.
• The Personal Savings Allowance doesn't apply to interest earned inside an ISA, cash or otherwise — see our savings interest tax guide for 2026/27 for how the PSA works outside a wrapper.
• This sits alongside a separate change: the Cash ISA allowance is being cut to £12,000 for under-65s from the same date, while the overall £20,000 ISA allowance is unchanged and over-65s keep the full £20,000 Cash ISA limit.

What this article covers, that the other one doesn't go deep on, is the rules about what kind of cash-like asset you're even allowed to hold in a Stocks and Shares ISA from April 2027.

Why HMRC is doing this: the "anti-circumvention" logic

HMRC's own reasoning is that cutting the Cash ISA allowance to £12,000 would be pointless if people could just subscribe up to £20,000 into a Stocks and Shares ISA, leave it as uninvested cash, and use it as a second cash ISA. So alongside the Cash ISA cut, three linked measures apply from 6 April 2027:

1. The 22% charge on interest paid on cash held in a non-cash ISA.
2. A ban on transfers from a non-cash ISA into a Cash ISA (for under-65s) — the reverse, Cash ISA into Stocks and Shares ISA, is still allowed.
3. A ban on 100% cash-like portfolios. A non-cash ISA made entirely of cash-like assets becomes a "non-qualifying investment." From April 2027, cash-like assets are defined as money market funds only — and they can't be the whole account.

That third rule is the one most explainers skip over, and it's the one this article is about.

What is a money market fund, in plain English?

A money market fund (MMF) is a pooled fund that invests in very short-term, low-risk debt — things like short-dated UK gilts, bank deposits, and high-quality corporate debt that mature in weeks or months, not years. HMRC's own factsheet describes it as "a low-risk, highly liquid mutual fund that invests in short-term debt securities."

The practical differences from plain cash:

• It's an investment, not a deposit. Your money buys units in a fund. The fund's managers lend it out short-term and pass the return back to you as fund performance, not "interest" in the strict legal sense.
• Its value can (in theory) move, though MMFs are built to keep their unit price close to stable — this isn't a share-price rollercoaster.
• It's usually not instant-access in the same way as cash. Selling MMF units typically settles the next working day, not immediately.
• It sits inside your ISA like any other fund or ETF — you buy and hold units through your platform, the same way you'd hold a beginner ETF.

The reason HMRC is comfortable exempting MMFs from the 22% charge is precisely because the return isn't classed as "interest" — it's investment income from a fund, which is how the rest of your Stocks and Shares ISA already works.

Is money market fund income taxed too?

Not by this specific 22% charge — that's the point of the exemption. But two things are worth being clear-eyed about. First, this isn't a loophole to exploit: the 100%-cash-like ban exists precisely so people can't swap "cash" for "100% MMF" and carry on the same way — it has to sit alongside genuine investments. Second, outside an ISA, MMF income is taxable as savings income, using your Personal Savings Allowance (see our savings interest tax guide). Inside the ISA wrapper, none of that applies — MMF returns held there stay outside both the 22% charge and income tax.

Cash vs money market fund vs a general investment account

A quick note on FSCS protection, since it's easy to mix up: cash in a bank account (including uninvested cash your broker holds with a bank) falls under the deposit protection limit, raised to £120,000 per person, per firm on 1 December 2025 (source: FSCS, November 2025). A money market fund falls under the separate investment protection limit, still £85,000 per person, per firm (source: FSCS, accessed August 2026). Either way, FSCS only covers you if the firm fails — not ordinary market movements.

Who should pick what

Saving for something in the next 1–3 years, don't want it in shares? A Cash ISA is simpler and untouched by the 22% charge — see our best Cash ISA rates roundup. Just remember the under-65 allowance drops to £12,000 from April 2027.

Long-term investor with occasional uninvested cash — say, between selling one holding and buying another? A money market fund is the sensible parking spot from April 2027: it avoids the 22% charge and keeps the money inside the wrapper, ready to redeploy. Just don't make it your whole ISA.

Using your Stocks and Shares ISA as a substitute emergency fund, sitting mostly in cash? This is exactly what the reform targets. You'll either pay the 22% charge on any interest, or need to hold it as a partial MMF allocation. For a genuine emergency fund, a normal savings account or Cash ISA outside this wrapper usually fits better.

Investing for growth, rarely holding cash? This barely affects you — see our beginner's guide to ETFs if you'd rather put spare cash to work than park it.

How to get started

1. Check how much cash is sitting in your Stocks and Shares ISA. Log into your platform and look at your uninvested cash balance.
2. Decide what that cash is actually for. Short-term saving goal → Cash ISA. Waiting to invest → money market fund. Genuine investing money → put it to work in funds or ETFs.
3. Check your platform offers a money market fund inside the ISA. Trading 212 lets you hold cash in qualifying money market funds and banks through its interest-on-cash feature, or you can buy a dedicated money market ETF directly. You can open a Trading 212 Stocks and Shares ISA here — check the current rate and terms on their site first, as rates are variable.
4. Want more direct control over fund selection? InvestEngine offers commission-free access to money market funds and ETFs inside its Stocks and Shares ISA, with a £0 platform fee on its self-managed option. Check InvestEngine's Stocks and Shares ISA here.
5. Set a reminder for spring 2027. HMRC says regulations will be laid in Autumn 2026 after a technical consultation, so details could still shift before 6 April 2027 — check GOV.UK closer to the date.
6. Still unsure? Speak to a regulated financial adviser, especially with a large ISA balance or if you're nearing age 65, when some of these rules change.

FAQ

What counts as a "cash-like asset" in a Stocks and Shares ISA from April 2027? Money market funds only. Ordinary shares, mainstream funds, investment trusts, ETFs, and bonds (including UK gilts) aren't treated as cash-like, even the low-risk ones (source: GOV.UK factsheet, 23 June 2026).

Will I need to do anything myself to pay the 22% charge? No. Your ISA manager calculates and pays it directly to HMRC. You don't declare ISA interest on a tax return, and that doesn't change under the new rules (source: GOV.UK factsheet, 23 June 2026).

Can I still hold 100% cash in my Stocks and Shares ISA after April 2027? You can hold cash, but a non-cash ISA made up entirely of cash-like assets (from April 2027, meaning money market funds specifically) becomes a "non-qualifying investment." HMRC's stated aim is to discourage pure-cash-forever strategies through both the charge and this rule.

Is a money market fund as safe as cash in a savings account? Not quite. A bank deposit is covered by FSCS deposit protection up to £120,000 per person, per firm (since 1 December 2025). A money market fund is an investment, covered by FSCS investment protection up to £85,000 per person, per firm, and its unit price can, in principle, move slightly — though MMFs are designed to be low-volatility and highly liquid.

What happens to my Cash ISA allowance in April 2027? For under-65s, it's cut to £12,000 from 6 April 2027, down from £20,000. Over-65s keep the full £20,000. The overall combined ISA allowance stays at £20,000. See our Cash ISA allowance cut breakdown for details.

Are these rules definitely final? As of August 2026, HMRC's factsheet (23 June 2026, updated 20 July 2026) confirms the policy, but a technical consultation on the draft legislation is still to come, with regulations laid in Autumn 2026. The broad shape looks settled, but exact drafting details could still shift before 6 April 2027 — check GOV.UK nearer the date.

This is general information, not financial advice. Rates and rules are current as of 12 August 2026 and can change — always check the provider's website before you act. Do your own research and consider speaking to a qualified adviser about your situation.

Last updated: 12 August 2026