Pensioners face a 22 per cent tax levy on interest earned from cash holdings within their stocks and shares ISAs from next April.
The announcement comes despite older savers being granted an exemption from the Chancellor’s reduction of the annual cash ISA allowance, which will fall from £20,000 to £12,000.
A late amendment during November’s Budget preserved the full £20,000 cash ISA limit for those aged 65 and above.
Yet these same investors will still be subject to the new charge on uninvested cash sitting in their investment accounts, alongside fresh regulations governing “cash-like” assets.
Pensioners to be hit with 22% tax on ISA savings in ‘parting gift’ from Rachel Reeves
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Financial experts have raised concerns that these measures could disproportionately harm older savers who need to reduce their exposure to market volatility.
Jason Hollands, a managing director at investment coaching firm Bestinvest, said: “The restrictions will be particularly problematic for older investors who are seeking to de-risk gradually rather than making wholesale portfolio changes.”
Helen Morrissey, the head of retirement analysis at Hargreaves Lansdown, said: “The levying of a 22 per cent charge on interest on cash held in stocks and shares ISAs may give some older investors pause for thought about their ability to de-risk their portfolio in times of stock market turbulence.”
She noted that investors could still place the majority of their holdings into low-risk money market funds or transfer assets into cash ISAs.
Sir Mel Stride is the Conservatives’ shadow chancellor | GB NEWS
Sir Mel Stride, the shadow chancellor, branded the measures “Rachel Reeves’s parting gift” in his response on Tuesday.
He added: “Labour are punishing people who have done exactly what governments have long encouraged them to do.”
Wealth managers have warned that the reforms may prove unnecessary and could make investment ISAs considerably more difficult for customers to navigate.
Some industry figures have suggested the changes might even lead to savers receiving lower interest payments on their funds.
A Treasury spokesman defended the policy, stating: “Parking cash long term in a non-cash Isa to earn tax-free interest isn’t investing.
“These changes will push more people towards investments that actually grow their money, and industry leaders including Nationwide and the Building Societies Association back us on this.”
The Government emphasised that savers retain access to £12,000 in cash ISAs, with those aged 65 and over keeping the full £20,000 allowance.
