One of the less unexpected announcements in Chancellor Rachel Reeves’ Budget in November 2025 was the measure to lower the cash ISA limit from £20,000 to £12,000 for those aged under 65 – the aim being to encourage individual investment in the stock market and to support better returns for savers.
The overall annual ISA limit will remain at £20,000, but for those aged under 65, only £12,000 of that can now be invested in a Cash ISA.
But many commentators have pointed out that cash can be held in a Stocks and Shares ISA in what are termed ‘cash-like assets’. So long as those cash-like assets were partial allocations – in other words don’t make up 100% of the Stocks and Shares ISA – then investors would be able to get around the Mrs Reeves’ new limit.
But at the end of June, HMRC published its ‘ISA anti-circumvention factsheet’, which set out proposals for rules to stop investors avoiding the new rules. The factsheet draws a more explicit distinction between cash and investing within the ISA system, whilst aiming to preserve the flexibility needed for legitimate investment activity within non-Cash ISAs.
The proposals state that investors will still be able to hold cash (or ‘cash-like assets’) in a non-cash ISA, but that there will be a flat-rate charge of 22% on any interest (or alternative finance return) paid on that cash. The charge will be paid directly by ISA providers to HMRC, which means that there will be no requirement for individuals to declare that interest – however, the Personal Savings Allowance will also not apply to it.
The rule about partial allocations will still apply – a non-cash ISA made up of 100% cash-like assets will not qualify as an ISA, and the full marginal rate of tax will apply to any interest paid.
Although this is a new, extra tax charge, it is worth bearing in mind that it will be a flat-rate charge at 22% - so higher and additional rate taxpayers, who would otherwise be taxed at 42% and 47% respectively on any savings interest, may still be better off than holding cash outside an ISA wrapper.
In addition to all of this, from April 2027 (from when all of these new rules will apply), investors will no longer be able to transfer assets from a Stocks and Shares ISA into a Cash ISA – except for those aged 65 and over.
Common investments held in Stocks and Shares ISAs, such as individual shares, funds, investment trusts, exchange-traded funds and corporate and government bonds (including UK gilts) will not be treated as cash-like assets under these proposals, and income from these assets held within a such an ISA will continue to be free of tax.
Those aged under 65 who want to keep cash within an ISA have until April next year to transfer that cash out of any Stocks and Shares ISAs they may hold, and they will need to assess whether holding cash-like assets in such ISAs is the best place for them.