Rachel Reeves to clobber Isas with tax for the first time, with a 22% charge on cash in investment accounts

Isas will be taxed for the first time in one of Rachel Reeves’ final stints as Chancellor.

Savers holding cash in stocks and Isas will soon be hit with a 22 per cent tax cut in a cruel betrayal of the tax-free Jesus promise.

The Treasury announced last night that it will introduce a new tax to penalize savers who keep cash in these accounts from April 2027.

The attack on Isas, popular for their tax-free privileges, has sparked outrage across the financial sector, with experts branding the new rules ‘draconian’.

Additionally, the guarantee that these accounts will be tax-free is now ‘weakened’, leading financial experts say. This is Money and the Daily Mail.

They warned that the new charge on interest would damage Isas’ reputation as a tax-efficient way of saving and further complicate an already complex system.

Ms Reeves plans to impose a higher new savings tax on cash in investment accounts to stop savers fleeing her Budget raid on cash jesus allowance.

Last November, Ms Reeves reduced the amount that can be saved in cash Isas, reducing the annual allowance for those aged under 65 from £20,000 to £12,000 from April 2027.

The amount that can be put into Isa investment will remain at £20,000 each tax year, in a bid to encourage more savers to invest in the stock market.

But the Chancellor has now gone one step further. Savers who keep cash in the safe stocks and shares Isa They will have to pay 22 percent tax on the interest they earn starting from April.

Shadow Chancellor Sir Mel Stride told the Daily Mail: ‘Rachel Reeves’ parting gift to Britain looks set to be a new tax raid on savers. Labour’s tax changes pose a double whammy for savers; It increases the tax rate on savings interest while cutting Isa allowances.

‘It seems that even investment will not be safe anymore. ‘Labour is punishing people for doing what governments have long encouraged: work hard, save and get ahead.’

Why do investors often need to hold cash?

There are two main types of Jesus: cash jesus It’s a place where investment returns are tax-free, where savers can earn interest without paying any taxes, as long as it’s not ordinary savings accounts and stocks.

However, savers often hold cash and ‘cash-like’ funds in stocks and shares. This can happen when money is added to the account but has not yet been invested in a stock or fund, or if someone delays investing their money during periods of market volatility.

From 6 April 2027, savers under 65 will be able to deposit up to £12,000 into a cash Isa and put the rest (£8,000) into stocks and shares if they wish to invest it.

The Chancellor’s high-rate 22 per cent tax charge is designed to stop savers breaching the new cash Isa limit that comes into force next April, amid fears that savers will cash out the entire remaining £8,000 allowance into an investment Isa.

Under current rules, this money will earn high levels of interest, tax-free.

Those who keep cash in accounts for genuine reasons, such as choosing where to invest their funds, will also be deterred by the tax raid.

Jason Hollands, general manager investment platform BestInvest says: ‘This undermines Isas’ promise of being tax-free. ‘It’s like using a sledgehammer to crack a walnut.’

There are also concerns that appetite for investment risk may be distorted by the fee.

Rachael Griffin, of asset manager Quilter, says: ‘There is a risk that the product will appear more complex at the point where policymakers want cautious savers to take their first steps into investing.

‘In practice, applying a flat-rate charge on interest means that investors will receive a lower net return regardless of their personal tax position, effectively applying a consistent deduction on their cash holdings rather than targeting a particular behaviour.’

Simon Harrington, of the Association for Personal Investment Management and Financial Advice, added: ‘We are disappointed that the government has chosen to further complicate the Isa regime with such draconian anti-avoidance measures, and that there is little or no evidence that consumers will behave as these measures assume.’

There were initially fears that ‘cash-like’ money market funds could also be dragged into tax trouble. These funds generally invest in government bonds that will be paid off within the next few months, so the income they offer is quite safe.

However, HMRC has not yet announced whether those whose portfolios consist entirely of these money market funds will be penalized.

Transfers from non-cash Isas to cash equivalents will also be banned under the new regime, although the reverse will be permitted.