![\"Rachel](\"https:\/\/dailybusinessgroup.co.uk\/wp-content\/uploads\/2025\/11\/Rachel-Reeves-Budget-2025.png\")
Rachel Reeves\u2019 parting shot as chancellor is to tax individual savings accounts (ISAs) for the first time.<\/p>\n
From next April, those holding cash in their stocks and shares Isas will face a 22% tax charge on the interest received.<\/p>\n
Industry sources have warned that the tax will undermine the tax-efficiency of Isas and add to an already complex set of rules.<\/p>\n
In her November budget the chancellor slashed the annual Isa allowance from \u00a320,000 to \u00a312,000 for under-65s from April 2027.\u00a0<\/p>\n
The amount that can be put in an investment Isa will remain at \u00a320,000 in each tax year, in a bid to push more savers to invest in the stock market.<\/p>\n
However, savers who hold cash in a\u00a0stocks and shares Isa\u00a0will have to pay the new tax on any interest they earn.<\/p>\n
This will affect savers who hold uninvested cash in their account while deciding which stocks to buy or during periods of market volatility.<\/p>\n
The chancellor\u2019s new tax charge is designed to stop savers flouting the new \u00a312,000 cash Isa cap by placing all of the remaining \u00a38,000 allowance in cash inside an investment Isa.\u00a0 Under current rules, this money would earn a high level of interest free of tax.<\/p>\n
Critics say the new tax will reduce appetite for investing in Isas. Jason Hollands, a managing director at\u00a0investment platform\u00a0BestInvest, says: \u201cThis undermines the tax-free promise of Isas. It\u2019s like using a sledgehammer to crack a walnut.\u201d<\/p>\n
Lifetime ISA to be scrapped<\/strong><\/p>\n The government has also launched a consultation on the implementation of a new First Time Buyer ISA (FTB ISA) to replace the Lifetime ISA (LISA).<\/p>\n Rebecca William, financial planning divisional lead at Rathbones, said it \u201ccould mark a welcome shift towards simplicity in a space that has often felt unnecessarily complicated.\u201d<\/p>\n The Lifetime ISA tried to serve two masters \u2013 helping people save for a home and for retirement \u2013 and in doing so it often created confusion rather than clarity, she said.<\/p>\n \u201cA more focused product that is solely geared towards getting on the housing ladder should be easier to understand and use in practice, particularly as it removes the withdrawal penalty that proved so contentious with the LISA.<\/p>\n \u201cHowever, this comes at the expense of the Lifetime ISA, which did offer under?40s another tax?efficient route to build savings for later life. <\/p>\n \u201cOne of its key advantages was that withdrawals from age 60 are completely tax free \u2013 a notable contrast to pensions, where typically only 25% can be taken tax-free. Yet from our experience, the product often flew under the radar and was poorly understood by many savers.\u201d<\/p>\n \t <\/div>\n