Expected to take effect in April 2027, the proposed levy is designed to prevent savers from bypassing incoming restrictions on cash savings and to drive more domestic capital into productive investments.

The policy follows the Chancellor’s recent Autumn Budget announcement, which cuts the annual Cash ISA allowance from £20,000 to £12,000 for individuals under the age of 65.

Because the overall ISA limit remains firmly at £20,000, the Treasury is concerned that savers will simply deposit their excess allowance into a Stocks and Shares ISA and leave it as uninvested cash to earn tax-free interest. By imposing a 22% charge, which aligns with the incoming savings interest tax rate, the government aims to close this loophole and force a shift from cash hoarding into equities to help stimulate economic growth.

While the measure echoes a previous 20% tax on investment ISA cash interest that was abolished in 2014, it has prompted significant concern across the financial services sector. Financial planners across Scotland and the wider UK argue that holding cash is a fundamental aspect of standard portfolio management, necessary for receiving dividends, staging market entries, and paying platform fees.

There is ongoing industry speculation regarding whether cash-like instruments, such as money market funds and overnight rate exchange-traded funds, might also be caught within the scope of the new rules.

Wealth managers and investment platforms are warning that the changes will introduce severe complexity to the ISA regime. Critics suggest that rather than encouraging active investment, the proposed levy risks penalising retail investors for utilising their accounts exactly as designed, ultimately weakening the appeal of the UK’s most popular tax wrapper.