Money Beat – ISA changes

Will I pay 22% tax on my ISA?

You may have seen recent headlines about a new tax charge on some ISAs.

Some of these headlines sound worrying. But the key point is simple:

The new charge is aimed at cash held inside Stocks & Shares ISAs. You will NOT pay 22% tax on your Police Friendly & Metfriendly ISA.

Here are the main questions answered.

What is changing?

From 6 April 2027, new ISA rules are expected to come into force.

The main change is that the Cash ISA limit will reduce to £12,000 per tax year for people under age 65.

The overall ISA allowance will stay at £20,000.

This means people under 65 will still be able to use their full £20,000 ISA allowance, but only £12,000 of it can go into a Cash ISA.

The rest would need to go into another type of ISA, such as a Stocks & Shares ISA, Lifetime ISA or Innovative Finance ISA.

What about people aged 65 and over?

People aged 65 and over will keep the full £20,000 Cash ISA allowance.

This higher limit will apply from the start of the tax year in which you turn 65.

Why is a new tax charge being introduced?

The Government wants to stop people getting around the lower Cash ISA limit by leaving money sitting in uninvested cash or cash like assets within Stocks & Shares or Innovative ISAs.

What is the new 22% charge?

The new charge applies to interest earned on cash held inside Stocks & Shares or Innovative ISAs.

For example, this could apply where cash is left uninvested inside a Stocks & Shares ISA.

The charge is 22% of the interest paid on that cash.

The tax is paid by the ISA provider directly to HMRC on behalf of the investor. Individuals will not need to report it to HMRC themselves.

Does this mean ISAs are no longer tax-free?

No. ISAs remain tax-efficient savings and investment products.

The charge is targeted at cash interest inside non-Cash ISAs – it does not mean all ISA returns will be taxed.

Will I pay 22% tax on my Police Friendly & Metfriendly ISA?

No, not in the way some headlines may suggest.

Your Police Friendly & Metfriendly ISA is invested in our With-Profits Fund.

We do not hold uninvested cash balances for members, and only a small part of the fund is held in cash or cash-like assets.

The new charge is aimed at long-term cash holdings inside non-Cash ISAs. That is not how our ISA works.

What about cash held inside the With-Profits Fund?

Holding some cash inside a wider investment fund is different from leaving your ISA money sitting in uninvested cash.

Our With-Profits Fund spreads money across different types of assets. These may include fixed interest investments, shares, property and cash.

Cash is held only as part of the fund’s wider investment approach.

The Government has said that diversified portfolios with some cash-like exposure will still be allowed.

What are “cash-like assets”?

The Government has said that, from April 2027, cash-like assets will be defined as Money Market Funds.

A Money Market Fund is a low-risk fund that invests in short-term debt securities.

The new rules are mainly aimed at people using these funds, or uninvested cash, as a way to keep large amounts of money in cash inside a non-Cash ISA.

Can a Stocks & Shares ISA still hold some cash?

Yes.

Investors will still be able to hold cash inside Stocks & Shares or Innovative ISAs.

But interest earned on that cash will be subject to the new charge.

The Government has also said that cash-like assets can still be part of a diversified investment portfolio. The issue is when an Investment ISA is used wholly, or almost wholly, as a cash product.

What happens if a non-Cash ISA is 100% invested in Money Market Funds?

From April 2027, a non-Cash ISA made up entirely of Money Market Funds will be liable for the 22% tax charge on the gains made.

This is because the Government sees this a way to fully invest in cash through an Investment ISA.

Can I transfer from a Stocks & Shares ISA into a Cash ISA?

For people under 65, transfers from non-Cash ISAs into Cash ISAs will not be allowed from April 2027.

Transfers from Cash ISAs into non-Cash ISAs will still be allowed.

People aged 65 and over are expected to retain more flexibility.

Does Police Friendly & Metfriendly offer a Cash ISA?

No.

Our ISA is designed for people who want the long-term growth potential of investing, while still taking a balanced approach to risk.

When you save or invest in an ISA with Police Friendly & Metfriendly, your money is invested through our With-Profits Fund.

This means your money is spread across different types of assets, with the aim of helping to manage risk and deliver attractive returns over the medium to long term.

Is a Police Friendly & Metfriendly ISA the same as typical Stocks & Shares ISA?

No.

With a Police Friendly & Metfriendly ISA, you are not directly choosing shares or funds yourself.

Instead, your money is invested through our With-Profits Fund, which is managed by professional fund managers.

The fund invests across a range of assets, rather than relying on one single investment type.

Is my money protected?

Yes.

Because members’ savings and investments are held in life insurance policies, they are 100% protected under the Financial Services Compensation Scheme insurance rules.

This is different from the protection limit that applies to banks and building societies.

What should I do now?

If you already have a Police Friendly & Metfriendly ISA, you do not need to worry that the 22% charge will apply to you.

If you are thinking about opening an ISA, the recent headlines should not put you off.

ISAs remain a valuable way to save and invest tax-efficiently.

The key is choosing the right ISA for your goals, your time frame, and the level of risk you are comfortable taking.

Find out more

If you have any more questions, you can:

Call us – 01689 891454 (Lines are open Mon-Thurs 8:30 – 17:00 or Fri 8:30 – 16:30).

Book a free personal chat – A conversation with a member of our friendly team.

Arrange a call back – Pick a time that suits you.