Chancellor Rachel Reeves is under fire over her rumoured 22 per cent levy on interest generated by uninvested cash sitting within stocks and shares ISAs.
Financial analysts are taking aim at the tax, scheduled to come into force from April 2027, which is understood to bring the treatment of such interest in line with the savings interest tax rate.
Speaking to Newspage, founder and managing director of Investing Investors Antonia Medlicott expressed strong opposition to the proposals.
She said: "I find these proposals deeply frustrating as taxing uninvested cash held in a stocks and shares ISA feels like a punishment aimed at diligent savers who genuinely want to invest their money.
The Chancellor's ISA reforms are under fire
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"Whether it's deciding what to buy next, waiting for a market dip, or rebalancing your portfolio, these are legitimate reasons to hold cash inside an ISA, and not people looking to use a tax loophole."
The plans appear set to proceed following a consultation period, though industry figures warn the changes could erode public confidence in ISA products.
Notably, the proposed changes extend beyond the new tax, with the cash ISA allowance set to fall from £20,000 to £12,000 from next year.
Additionally, savers will no longer be permitted to transfer funds from a stocks and shares ISA back into a cash ISA under plans confirmed by Ms Reeves's Budget 2025 statement.
Examples of tax free Isa earnings in the UK if you had £20,000 in the Isa | GBNLATEST DEVELOPMENTS
The ISA allowance resets each year on April 6, when a new tax year begins | GETTYScott Gallacher, the director at Leicester-based Rowley Turton, warned that these restrictions remove crucial flexibility for investors.
He said: "Someone who invests through a stocks and shares ISA and later needs to de-risk, perhaps because they lose their job, face a tax bill, or simply need greater certainty, could find their ISA cash subject to a charge, with no option of transferring it into a cash ISA."
Mr Gallacher described ISAs as "one of the great policy successes of successive Governments, regardless of political colour," noting they are "simple, trusted and widely understood." He cautioned these changes risk undermining that confidence.
Anita Wright, a chartered financial planner at Ribble Wealth Management, offered a more measured perspective on the policy's impact.
The Chancellor is making changes to ISA rules
| GETTYShe shared: "The Government isn't taking 22 per cent of your cash. It's a 22 per cent tax on the interest that cash earns inside a stocks and shares ISA, bringing it in line with the savings tax rate coming in next April."
Ms Wright described the measure as "an anti-avoidance measure to stop people sidestepping the smaller cash ISA limit by hiding cash in the wrong wrapper".
A Treasury spokesman said: "We are reforming the cash ISA to encourage more people to invest in stocks and shares - which have historically performed better than cash savings - and we have retained the generous £20,000 tax-free limit.
The spokesman added: "These changes will make people better off and will not require anyone to move existing savings from their cash ISA."