TL;DR
Treasury consultations have raised the prospect of a future charge on cash ISA balances above a certain threshold. The current £20,000 annual allowance and tax-free status remain unchanged. Any reform would require new legislation and is not yet in force.
Treasury consultations on cash ISA reform have raised the prospect of a charge on long-held balances above a threshold figure as part of broader savings policy review. The current £20,000 annual allowance and tax-free status of all ISAs remain unchanged in 2026-27, and any reform would require new legislation.
What the proposal actually covers
The Treasury consultation looks at whether cash ISAs are the most effective way to channel household savings, given that interest earned in cash ISAs already falls largely within the Personal Savings Allowance for most basic-rate taxpayers.
The 22 per cent figure has been floated in commentary as one possible scenario for tax on balances above a threshold, but the consultation has not landed on a specific rate or threshold. The document invites views from the industry and savers.
What stays the same in 2026-27
The total annual ISA allowance remains £20,000, with no change to the rules on cash, stocks and shares, lifetime or innovative finance ISAs. Junior ISAs continue at £9,000 a year per child.
Interest, dividends and capital gains inside an ISA remain tax-free. Transfers between ISA providers continue to be allowed without consuming any of the annual allowance, as long as the proper transfer form is used.
The Personal Savings Allowance context
Outside an ISA, basic-rate taxpayers can earn £1,000 a year in savings interest tax-free under the Personal Savings Allowance, with £500 for higher-rate taxpayers and nil for additional-rate taxpayers.
At current interest rates of 4 to 5 per cent on easy access savings accounts, a basic-rate taxpayer can hold roughly £20,000 to £25,000 in a standard account before paying tax. ISAs offer additional shelter above that level.
Lifetime ISA and stocks and shares ISA
Lifetime ISAs allow under-40s to save up to £4,000 a year towards a first home or retirement, with a 25 per cent government bonus on contributions. Withdrawals before age 60 or for a non-qualifying purpose attract a 25 per cent charge that recovers the bonus and some of the contribution.
Stocks and shares ISAs allow tax-free dividends and capital gains on equity investments. The reform consultation includes scope to encourage more saving into stocks and shares ISAs, though no specific changes have been confirmed.
What savers can consider now
Use the current £20,000 allowance before the 5 April tax year end to lock in tax-free status. Transfers from existing taxable savings to an ISA do not count as new contributions, as long as the proper transfer form is used.
Compare ISA rates through Bank of England statistics and through Ofcom-approved comparison sites. Fixed-rate cash ISAs typically offer higher rates than easy access but lock funds away for one to five years.
Key facts
- ISA annual allowance is £20,000 in 2026-27.
- Junior ISA allowance is £9,000 per child.
- Personal Savings Allowance is £1,000 basic, £500 higher rate.
- ISA reform is at consultation stage with no rate confirmed.
- Lifetime ISA bonus is 25 per cent up to £1,000 a year.
FAQ
Is the 22 per cent ISA tax confirmed?
No. The figure has been raised in commentary on the Treasury consultation but no rate or threshold has been confirmed. Any reform would need to go through Parliament before taking effect.
What is the current ISA allowance?
The total annual ISA allowance is £20,000, which can be split between cash, stocks and shares, lifetime and innovative finance ISAs. Junior ISAs are £9,000 a year per child.
Should I move my cash ISA money?
Each saver's position is different. Cash ISAs remain tax-free with no current threshold. Comparing rates and considering stocks and shares ISAs for longer-term money are options to discuss with a regulated adviser.
How does the Personal Savings Allowance interact?
Basic-rate taxpayers can earn £1,000 of savings interest tax-free outside an ISA, and £500 for higher-rate taxpayers. ISA interest is always tax-free and does not count against the allowance.
