Millions of savers could soon face a new tax bill on money held inside investment ISAs.
The move comes as Rachel Reeves presses ahead with plans to reduce cash ISA allowances for many savers from 2027.
The Chancellor is preparing to introduce a 22 per cent tax charge on interest earned from cash held within stocks and shares ISAs from April 2027, new reports suggest.
The measure is part of anti-avoidance rules designed to stop savers sidestepping the Government's planned reduction in cash ISA allowances by moving large cash balances into stocks and shares ISAs.
Sources familiar with the plans have indicated that full details of the new rules are expected to be announced shortly, The Telegraph reported.
The 22 per cent charge would match the savings interest tax rate due to take effect in April 2027 and is similar to a 20 per cent levy that existed before 2014.
Under changes announced by Rachel Reeves in last year's Budget, savers under the age of 65 will see their annual cash ISA allowance cut from £20,000 to £12,000 from April 6, 2027.
However, they will still be able to use the full £20,000 ISA allowance through stocks and shares ISAs. The Government said the changes are intended to encourage more investment in UK markets.
Customers can deposit up to their annual ISA limit of £20,000 | GETTYHMRC has already confirmed that cash held within stocks and shares ISAs will become subject to a tax charge on interest earned from April 2027, although the exact rate had not previously been disclosed.
The number of people paying tax on savings interest has risen sharply in recent years, increasing from 1.2 million in 2022-23 to a forecast 2.8 million by 2026-27.
Following the Budget, HMRC confirmed in a newsletter that "cash-like" investments held in stocks and shares ISAs would face restrictions.
This would affect holdings such as money market funds, which offer marginally better returns than cash with minimal risk and are frequently used by investors waiting to purchase equities.
Rachel Reeves says Labour's plan is the 'right one' | POOLThe Treasury will additionally prohibit transfers from stocks and shares ISAs and innovative finance ISAs into cash ISAs under the forthcoming rules.
Rachel Vahey, of investment platform AJ Bell, said: "This really does need resolving if the Treasury wants to keep to the timeline of April 2027.
"It leaves us with very little time to make changes. At the moment, we're looking at a very sharp implementation period and we really need some clarity from the Treasury as soon as we can get it."
The reforms follow months of negotiations between Treasury officials, investment firms, brokers and building societies regarding how to penalise savers attempting to circumvent the reduced cash ISA limit.
A Treasury spokesman said: "We are reforming the cash Isa to encourage more people to invest in stocks and shares"
| GETTYA 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 proposed 22 per cent charge bears resemblance to the pre-2014 ISA system, when cash interest earned within stocks and shares ISAs attracted a 20 per cent levy.
However, precise details of how restrictions on cash-like investments will operate under the new framework remain undisclosed.