ISAS IN TRANSITION: UPCOMING CHANGES TO PERMISSIBLE INVESTMENTS AND POTENTIAL CASH CHANGES

With the budget fast approaching, speculation persists about possible ISA changes that might be announced.

Earlier in the year it was announced that, from 6 April 2026, ISA managers will be able to make Long Term Asset Funds (LTAFs) available within a stocks and shares ISAs. We wrote about LTAFs in the August Adviser Update, which you can find here. This also covers why we do not currently intend to make them available.

In addition to this, the government’s commitment to encourage individuals to reduce excessive cash holdings in favour of more productive investments is well known and speculation continues to mount about how changing the rules, in particular – reducing the cash subscription limit, might help achieve this. To be effective, any changes to the cash ISA subscription limit would need to be accompanied by changes to the rules for holding cash in a stocks and shares ISA. As it currently stands, cash and near cash investments can be held in a stocks and shares ISA without limit, and there are also no limits on the amounts that can be transferred between cash and stocks and shares ISAs.

If changes to the rules around holding cash in an ISA were limited solely to cash ISAs, the impact on Transact ISA clients would be very limited as only around 0.3% of our total ISA holdings are in a cash ISA. However, the average cash balance in our stocks and shares ISA is currently around 8.7%.  Any changes to the rules in relation to holding cash in a stocks and shares ISA has the potential to impact a much greater number of clients, who may then need advice on reducing their cash holdings in favour of increased equity exposure.

Very little has been said about whether we can expect changes in this area, but it is worth bearing in mind that the current rules around holding cash in a stocks and shares ISA have only been in place since the introduction of the “New ISA” in July 2014. Prior to this time, cash could be held in a stocks and shares ISA, but the interest generated on the cash was subject to a charge of 20%. If the government wanted to discourage individuals from holding large amounts of cash in a stocks and shares ISA, reintroducing this charge would seem like an effective, although unpalatable way of achieving this.

If you have any questions, please feel free to contact the Technical Services team.

All information is based on our understanding and interpretation of applicable law and regulation which is subject to change.