Savers could exploit a 1p strategy to sidestep restrictions on funds stashed in ISAs. The annual limit for cash ISAs for those under 65 will decrease from £20,000 to £12,000 starting April 2027. However, the overall ISA allowance for the same age group will remain at £20,000, enabling individuals to split their savings between cash ISAs and stocks and shares ISAs.
Alternatively, one could fully invest the £20,000 allowance into stocks and shares ISAs to promote investment and bolster economic growth. Those aged over 65 will still have the option to deposit up to £20,000 into a cash ISA.
Reports indicate that savers may face a 22% levy on interest accrued from cash held in stocks and shares ISAs from April 2027. However, as per a recent update from the Telegraph, this charge will only be applicable if all investable assets are in “cash-like” investments, such as money market funds.
In theory, an individual could invest £12,000 in a cash ISA, allocate £7,999.99 in cash to a stocks and shares ISA, and invest the remaining 1p in the stock market.
HMRC had previously hinted at imposing a charge on interest for cash held in stocks and shares accounts without specifying the rate. A Treasury spokesperson emphasized the aim of encouraging more people to venture into stocks and shares for better returns while maintaining the £20,000 tax-free limit.
Furthermore, it has been confirmed that the tax rate on savings interest earned in other account types will rise from April 2027. Basic-rate taxpayers will see their tax rate on savings interest increase from 20% to 22%, while higher-rate and additional rate taxpayers will experience similar increments in their tax rates.
Different types of ISAs, including cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs, cater to various saving needs. Children have Junior ISAs with lower annual limits, like the £4,000 cap on the Lifetime ISA per tax year.
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