The 22% Charge on Cash in a Stocks and Shares ISA

Parking cash inside your stocks and shares ISA has always earned tax-free interest. From 6 April 2027, a 22% charge applies to every penny of that interest. The charge targets cash left sitting in an investment account, not the investments themselves — and it applies regardless of your tax bracket.

Last updated: 26 June 2026

What the charge is and why it exists

A stocks and shares ISA is designed for investing. The tax-free wrapper means your gains, dividends, and growth are yours to keep with nothing to declare. Cash has always been allowed inside one, but as a working balance: money waiting to be put to work, not a savings account.

At the autumn 2025 Budget, the government cut the annual cash ISA contribution limit from £20,000 to £12,000 for savers under 65, starting from 6 April 2027. The 22% cash charge follows directly from that decision. Without it, someone wanting to shelter £20,000 of cash tax-free could simply put the full amount into a stocks and shares ISA instead of a cash ISA. The charge removes that option by making cash interest inside an investment wrapper taxable.

Confirmed in the government's June 2026 tax update, the rule is narrow. Only interest earned on cash deposits inside a non-cash ISA is caught. Capital gains on shares, funds, and ETFs inside the ISA stay completely tax-free. Dividends inside the ISA stay tax-free. The 22% applies to one thing: cash earning interest inside an investment wrapper.

What counts as "cash" under the new rules

Cash means cash deposits held inside the ISA. Money market funds (low-risk funds that invest in short-term, highly liquid instruments) are not classified as cash under the rules, provided they do not make up 100% of your ISA. The income from a money market fund inside a stocks and shares ISA is not subject to the 22% charge in those circumstances. An ISA made up entirely of a money market fund does not qualify for that exemption.

Who pays it and how

You do not file anything yourself. The ISA manager calculates the charge and pays it directly to HMRC. You will see the net figure credited to your account. The 22% rate is flat and applies to everyone: regardless of your income tax bracket, your age, or whether you pay income tax at all.

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What it actually costs: two examples

Example 1: a modest cash buffer

Say you keep £5,000 in cash inside your stocks and shares ISA earning 4.5% interest from April 2027.

	Amount
Cash held in stocks and shares ISA	£5,000
Interest rate	4.5%
Gross interest earned	£225.00
22% charge (collected by your ISA manager)	£49.50
Interest credited to your account	£175.50
Effective return on cash	3.51%

Example 2: a larger ISA with a cash holding

You have a £60,000 stocks and shares ISA. Of that, £15,000 is in cash at 4.5% while you decide where to invest it. The invested portion is completely unaffected. Only the cash interest is charged.

	Amount
Total ISA value	£60,000
Cash portion	£15,000
Invested portion (shares, funds, ETFs)	£45,000
Gross interest on cash (4.5%)	£675.00
22% charge on interest	£148.50
Interest credited to your account	£526.50
Gains and dividends on the £45,000 invested	Tax-free, unaffected

How the three main options compare

Here is how £10,000 in cash earns interest under each wrapper at 4.5%, from April 2027. The savings account column depends on your income tax band and whether you have headroom in your Personal Savings Allowance (PSA).

Where your cash sits	Gross interest	Tax or charge	You receive
Cash ISA	£450	None	£450
Stocks and shares ISA (cash holding)	£450	£99 (22% charge)	£351
Savings account — basic rate (within £1,000 PSA)	£450	None	£450
Savings account — higher rate (within £500 PSA)	£450	None	£450
Savings account — higher rate (PSA used up, 40%)	£450	£180	£270
Savings account — additional rate (no PSA, 45%)	£450	£202.50	£247.50

PSA = Personal Savings Allowance. Basic rate taxpayers get £1,000; higher rate taxpayers get £500; additional rate taxpayers get nothing. Figures based on 4.5% interest on £10,000 from April 2027. The higher rate and additional rate rows reflect rUK (England, Wales and NI) income tax. Scottish taxpayers pay different rates on income but the PSA bands and ISA rules are the same.

The table makes one thing plain: once you have used up your PSA, a cash ISA is better than either a stocks and shares ISA (for cash) or a savings account. For a basic rate taxpayer who has plenty of PSA headroom and a relatively small cash holding, a savings account and a cash ISA deliver the same after-tax return, while cash in a stocks and shares ISA loses 22% of the interest from 2027.

Scotland and the 22% charge

ISA rules are set by the UK government and are identical across Scotland, England, Wales and Northern Ireland. The 22% charge applies at the same rate regardless of which Scottish income tax band you pay in. A Scottish intermediate-rate taxpayer at 21% and an English basic-rate taxpayer at 20% both face the same 22% on cash interest inside a stocks and shares ISA.

Where Scottish rates do matter is in the savings account column. A Scottish higher-rate taxpayer (42% above £43,662) pays 42% on savings interest above their PSA, compared to 40% for a higher-rate taxpayer in England. That makes a cash ISA relatively more valuable for high-earning Scottish savers than for their English equivalents.

What to do before April 2027

There are three practical responses, depending on why you are holding cash in your stocks and shares ISA.

1. Transfer the cash to a cash ISA now

From 6 April 2027, savers under 65 will no longer be able to transfer money from a stocks and shares ISA into a cash ISA. If you have cash in a stocks and shares ISA that you want to keep earning fully tax-free interest, make that transfer before April 2027. Use the provider's ISA transfer process: withdrawing the money yourself and re-depositing it would lose the tax-free status.

2. Invest the cash

Undeployed cash in a stocks and shares ISA is usually waiting to be invested. The charge is the government's prompt to do that sooner. For anyone holding cash as a short-term buffer before buying funds or shares, the answer is to invest it: gains and dividends on those investments stay completely tax-free inside the ISA, and the charge disappears along with the cash balance.

3. Switch to a money market fund

If you want to stay liquid inside your stocks and shares ISA but avoid the charge, a money market fund achieves that. Money market funds are not classified as cash under the new rules, provided they don't make up your entire ISA. The income the fund generates is not caught by the 22% charge. Most investment platforms offer at least one money market fund, and many allow you to switch from a cash holding into one without leaving the ISA wrapper.

The 2026/27 tax year is the last one before the new rules take effect. If you are reviewing how your ISA allowance is split, the ISA Allowance Planner shows exactly how much room you have across the different types, and the ISA allowance guide covers the full picture of what changes in April 2027.

Frequently asked questions

What does the 22% ISA cash charge apply to?

The 22% charge applies to interest earned on cash you hold inside a stocks and shares ISA. It does not apply to capital gains on investments, dividends, or money held in a cash ISA. Only interest on cash deposits sitting in a non-cash ISA is caught.

When does the 22% charge come into effect?

The charge applies from 6 April 2027. Interest earned on cash inside a stocks and shares ISA before that date remains tax-free. The 2026/27 tax year — ending 5 April 2027 — is therefore the last year cash interest inside a stocks and shares ISA is fully sheltered.

Does the charge affect investment gains or dividends inside a stocks and shares ISA?

No. Capital gains on shares, funds, and ETFs inside a stocks and shares ISA stay completely tax-free. Dividends inside the ISA stay tax-free. The 22% charge is specific to interest earned on cash balances held within the ISA.

Are money market funds caught by the 22% charge?

No, provided they do not make up 100% of your ISA. Money market funds are not classified as cash under the new rules, so the income they generate inside a stocks and shares ISA is not subject to the 22% charge. If your entire ISA is in a money market fund, however, that exemption does not apply.

Does the ISA cash charge apply in Scotland?

Yes. ISA rules are set by the UK government and apply equally across Scotland, England, Wales and Northern Ireland. The 22% charge is flat and identical regardless of which income tax band you pay in Scotland or elsewhere.

Can I transfer cash from a stocks and shares ISA to a cash ISA before April 2027?

Yes, and doing so before 6 April 2027 is the cleanest option if you want to keep cash earning fully tax-free interest. From April 2027, savers under 65 will no longer be able to transfer money from a non-cash ISA into a cash ISA. Use the provider's ISA transfer process rather than withdrawing and re-depositing, which would lose the tax-free status.