New 22% Stocks and Shares ISA Tax: What Changes in April 2027

From 6 April 2027, a 22% charge on cash interest earned inside Stocks and Shares ISAs will take effect, representing the most significant change to the wrapper’s tax treatment in over a decade. The Stocks and Shares ISA tax does not require investors to file anything extra: under the new rules, IG UK confirms that ISA managers will deduct the charge directly and remit it to HMRC on savers’ behalf.

What the 22% Stocks and Shares ISA Tax Actually Covers

The scope of the charge is narrower than the headline rate implies. Under the GOV.UK anti-circumvention rules factsheet, only money market funds (MMFs) will be classified as cash-like assets for the purposes of the new legislation. Individual shares, funds, investment trusts, ETFs, and bonds including UK gilts are explicitly outside that definition and entirely unaffected.

The 22% rate is not arbitrary. The Private Office notes that it mirrors the savings interest tax rate, which rises to 22% in April 2027, and echoes a rule that existed before 2014, when cash interest inside Stocks and Shares ISAs attracted a 20% charge before the restriction was lifted.

The measures were first announced at Autumn Budget 2025. Alongside the interest charge, the Cash ISA annual subscription limit will be cut from £20,000 to £12,000 for savers aged under 65. The original snippet had this the wrong way round: the GOV.UK factsheet is unambiguous that individuals aged 65 and over retain the full £20,000 Cash ISA limit, with that entitlement applying from the start of the tax year in which a person turns 65. Under-65s also face a ban on transferring funds from a Stocks and Shares ISA or an Innovative Finance ISA into a Cash ISA from the same date.

Industry reaction has been sceptical. Simon Harrington, head of public affairs at PIMFA (Personal Investment Management and Financial Advice Association), said: ‘We remain sceptical that these changes will have any real effect on consumer investment behaviour and fear they will do the opposite.’

Money Market Funds as a Practical Workaround

Here is where the rule creates an odd outcome. MMFs are the only investment category classified as cash-like, yet interest generated by an MMF held inside a Stocks and Shares ISA will be subject to the 22% charge just like cash on deposit. Investors using MMFs as a cash substitute within their ISA should take note.

That said, MMFs remain available within a Stocks and Shares ISA and continue to offer daily liquidity at low cost. The question is whether the post-tax yield still competes with alternatives. Current leading MMFs pay interest rates approaching 4% a year, according to the snippet; at a 22% deduction, the effective net return falls to roughly 3.1%, which may still compare favourably to many bond funds on a risk-adjusted basis.

One frequently cited example in this category is the iShares £ Ultrashort Bond UCITS ETF (LSE: ERNS), a £2 billion fund launched in October 2013. According to BlackRock, it tracks an index of sterling-denominated investment-grade corporate and quasi-government bonds. Its ongoing charge is 0.09% per year, below the Morningstar category median of 0.12% for short-term GBP diversified bond funds, as of 9 February 2026, per Morningstar.

As of 13 August 2026, the fund’s NAV stood at 101.10p, with a weighted average yield to maturity of 4.21% and a NAV total return of 2.45% year-to-date. Over one year the fund has returned 4.33%, and over three years 15.86%, per the snippet. Those figures are broadly in line with what short-duration investment-grade exposure would be expected to produce across the same periods.

Crucially, because ERNS holds bonds rather than cash, it currently sits outside the cash-like asset definition. Its interest distributions would therefore not attract the 22% charge under the rules as currently drafted. That could change if HMRC broadens the definition in future, which is a risk investors should monitor rather than assume away.

The Practical Takeaway for ISA Investors

For investors who maintain meaningful cash balances inside a Stocks and Shares ISA purely for convenience, the April 2027 rule creates a genuine drag. The 22% deduction at source means no action is needed administratively, but the economics of holding idle cash in the wrapper deteriorate. Short-duration bond funds and ultrashort ETFs sit outside the definition as currently written, making them the cleaner option for investors who want yield without the charge.

The key date to watch is the formal implementation of the anti-circumvention legislation in the months ahead. If the asset definition widens in the final statutory instrument, the calculus shifts again.