The Treasury is expected to announce that savers will no longer be able to use ISAs to generate tax-free income from investments from next year, ending a long-standing tax break that has helped millions build returns without paying on the gains. Income from stocks and shares ISAs is expected to be taxed at 22 per cent starting next April.
The move would close the 1p isa loophole in practice, because money that could previously be sheltered in a stocks and shares ISA will no longer enjoy the same treatment once the new charge takes effect. Last year, Rachel Reeves said the tax-free cash ISA allowance was being cut from £20,000 a year to £12,000 for under-65s, while savers were encouraged to place the remaining £8,000 of their annual ISA allowance into a stocks and shares ISA instead.
That guidance was meant to push more money into markets. The stated policy goal was to boost domestic investment in the stock market, and the Treasury is now moving further in that direction by reducing the tax advantage that made ISAs so attractive to cautious savers and active investors alike. For many households, the change will not be a small technical adjustment but a direct hit to the return they expected on money they had already set aside.
The shift also exposes a tension at the heart of the policy. Ministers want more money flowing into British shares, but the new tax treatment may leave savers with less confidence that the system is being designed for them. Instead of a simple nudge toward investment, the rules are becoming more complicated and less generous, especially for those who were told just months ago to move the rest of their allowance into stocks and shares ISAs.
What happens next is now clear enough. The Treasury is expected to set out the change formally, and from next April investors using stocks and shares ISAs are expected to face the 22 per cent tax charge. For people who have treated ISAs as one of the safest and simplest homes for savings, the bigger story is not only that the tax shelter is shrinking, but that the government is rewriting the deal while still asking households to take part in the market it wants to strengthen.
