Savers to be blocked from transferring to cash Isas from stocks and shares after Budget raid

Savers will be blocked from transferring stocks and shares to cash Isas as part of Rachel Reeves’ Budget raid.

From 6 April 2027, transfers from stocks and shares and innovative finance Isas to cash Isas will not be permitted under new rules. 

In a move that aims to limit the opportunities for savers to circumvent the new lower cash Isa level, HMRC will also stop investors using money market cash-like funds in stocks and shares Isas and even levy a charge on cash balances – in a move dubbed ‘another stealth tax’.

Chancellor Rachel Reeves announced in her Budget on Wednesday that the cash Isa allowance will be cut to £12,000 from its current level of £20,000 from 6 April 2025 for under 65s.

Those aged 65 and over will still benefit from the full £20,000 tax-free cash Isa allowance. 

Under the current rules, it is possible to transfer a stocks and shares Isa into a cash Isa and vice versa.

If that remained the same, in theory savers could pay £12,000 into a cash Isa and up to £8,000 into a stocks and shares Isa on top, then transfer the latter into a cash Isa shortly after.

They would also have been able to hold money market investment funds, which mimic cash returns, in a stocks and shares Isa, or cash balances, which many investment platforms now pay interest on.

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But there are genuine reasons that investors may decide to do this, for example to park money in cash for a period of time awaiting investment, or because they are nervous and want to move to cash to weather stock market storms.

When the new rules kick in any cash held within a stocks and shares Isa will face a charge on any interest earned from 6 April 2027. 

Investment platforms enable people to open stocks and shares Isas with cash that waiting to be invested, or sell investments and hold money temporarily as cash in their account.

This opened up the possibility that cash savers with more than £12,000 to shelter, could have skirted around the cap by opening a stocks and shares Isa with the excess £8,000 and leave their money parked in cash. 

Under the new rules, HMRC says tests will be undertaken to determine whether an investment is eligible to be held in a stocks and shares Isa or is ‘cash like’. This indicates money market funds will be blocked. An industry consultation will establish what the tests will look like before 2027. 

The Government said the new rules preventing transfers between the two tax-free vehicles are to ‘avoid circumvention of the lower limit for cash’.

Jason Hollands, managing director of investment platform Bestinvest, saidL ‘Levying a charge on cash held within stocks & shares Isas is yet another stealth tax that will impact genuine investors who sometimes decide to park money in cash for a period of time awaiting investment, or because they are nervous about the market environment.

‘The tests to determine whether eligible investments are “cash like” will throw doubt about access to money market funds within stocks and shares Isas and could even bring short-dated bonds into question. More uncertainty ahead.’ 

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