If you’re a British investor using a Stocks and Shares ISA, you’ve probably heard about the new 22% tax. But don’t panic just yet. For most investors, the new tax won’t have a significant impact.
Still, it’s worth knowing what’s changing, so this is what you need to know…
What’s changing?
First of all, the tax doesn’t apply to everything in an ISA. It only applies to cash held inside a Stocks and Shares ISA from 6 April 2027.
So any interest earned on cash balances held in a non-cash ISA will face a flat 22% charge. All other assets remain unchanged. So for those using an ISA mainly for investments, your capital gains or dividend income won’t be affected.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Still, there’s a few more finer points worth paying attention to. And moreso, it’s worth thinking about what these changes mean for the future.
So what could the long-term impact be?
Essentially, the change only affects anyone who keeps cash in a Stocks and Shares ISA long enough for interest to accrue. And while it also applies to ‘alternative finance returns’, HMRC says that Money Market Funds (MMF) are treated separately under the new rules.
That’s a key point worth thinking about for those who’d prefer to keep their funds in a ‘cash-like’ instrument. But overall, the change is aimed at encouraging investors to support the UK market by opting to hold shares over cash.
New ISA limits in a nutshell (from April 2027):
- Cash ISA allowance reduced to £12,000 for people under 65.
- Overall ISA allowance remains £20,000.
- Halt transfers from non-cash ISAs into Cash ISAs.
The takeaway
For most long-term investors, the main point is simple: a Stocks and Shares ISA still remains valuable for investing, but it’s no longer a sensible place to keep cash.
For income investors or anyone targeting wealth from growth stocks, the change won’t impact your dividends or gains. But if you typically hold cash inside your ISA while waiting to invest, try to limit it or use it more quickly.
With that in mind, here’s one reliable UK stock to consider shifting cash into before the new rules take hold.
A low-risk, reliable UK name
In my opinion, a diversified UK equity income trust makes the most sense when looking to shift cash into something low risk. One of my longtime favourites is City of London Investment Trust (LSE:CTY).
Run by Janus Henderson, the trust’s popular with income investors because it has a very long dividend record and a defensive, diversified portfolio.
Top holdings include HSBC, Shell, British American Tobacco, BAE Systems, NatWest, Lloyds, Rio Tinto, AstraZeneca, Unilever and Tesco — a broad spread that helps reduce sector-specific risk.
It isn’t entirely risk-free, but worth considering for someone who wants to avoid sitting on cash but keep volatility and risk more contained than in a single holding.
Key points:
- Share price: 567p.
- Market-cap: £2.92bn.
- Dividend yield: 3.85%.
- Premium: +1.04%.
- Net gearing: 4.59%.
Admittedly, with a focus solely on London-listed stocks, it’s heavily linked to the domestic economy and lacks regional diversification. So any downturn in the UK market would naturally hurt the share price.
So is it the best low-volatility idea to consider for British investors shifting out of cash?
Should you invest £5,000 in City Of London Investment Trust Plc right now?
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Mark Hartley owns shares in City of London Investment Trust, HSBC, British American Tobacco, BAE Systems, Lloyds, AstraZeneca, Unilever and Tesco.
