DON’T TAX INVESTORS WHO HOLD CASH IN THEIR STOCKS AND SHARES ISAS, REEVES URGED

Savers should be allowed to hold cash in stocks and shares ISAs for several months without facing tax charges on the interest they earn, investment experts have urged Chancellor Rachel Reeves.

At the Budget, the Government moved to reduce the allowance on the amount of money most people can place in cash ISAs each year to £12,000 from 2027, with the allowance for stocks and shares ISAs remaining at £20,000.

Some people hold cash alongside their investments in stocks and shares ISAs, but HMRC said in a newsletter after the Budget that people who saved cash in the accounts would also face a tax charge.

Although the exact rules are due to be consulted on, it has sparked concerns that people who temporarily hold cash in ISAs while they wait to reinvest cash could face bills from the taxman.

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ISAs are used to avoid tax on interest or investment gains and so charging tax would defeat their underlying purpose.

Investment experts have urged the Chancellor to rethink plans and instead allow people to hold cash in stocks and shares for a fixed period of time without billing them for tax.

Jason Hollands, managing director at Bestinvest by Evelyn Partners, said a tax on cash held in stocks and shares ISAs would “negatively impact genuine investors who will inevitably hold cash in their account from time to time.”

He said people would often do this as a result of dividends and coupons from bonds being paid out, or because they are cautious on the market outlook and want to temporarily put some money in cash to protect themselves.

He said a more reasonable option was “a time limit on the period of time the entire account can be held in cash, for example to three months.”

He said without this, stocks and shares ISAs could be “less attractive to investors”.

Camilla Esmund, retail investment expert at interactive investor, added: “There are many sound reasons why individuals may need to park money into cash for short periods of time, so the proposed implementation of any penalties on cash held in stocks & shares ISAs will need to reflect this, with sufficient time for consumers to act, and clear enough notice.

“More broadly, however, we believe simplifying the ISA landscape is what is really needed to create a nation of investors, removing any unnecessary complexity and helping people make informed decisions.”

Labour will reduce the amount of money that can be deposited in cash ISAs each year from 2027 to try and encourage a culture of investing.

Major investment platform Hargreaves Lansdown said that many people under 65 would need to “de-risk” their investment portfolios.

Under the new rules, transfers from stocks and shares ISAs to cash ISAs would also be banned.

A spokesperson for the firm said: “Some people will need to de-risk their portfolio to pay for life milestones ahead of the age of 65.

“Hargreaves Lansdown will be discussing the options with the government. It’s going to be vital to put the needs of savers and investors at the heart of decisions and ensure the process is simple and fair.”

Tom Selby, director of public policy at AJ Bell, said it was possible the Government could allow people to hold cash in stocks and shares ISAs for a set period of time without taxing them.

But he said a better solution would be to U-turn on the changes altogether.

“The Government’s approach to ISA reform is haphazard and suggests those making decisions have little understanding of the market they are interfering with,” he said.

The Treasury was contacted for comment.

2025-12-10T07:49:17Z