The Government’s proposed ISA reforms could create unintended consequences for savers by making portfolios less flexible and discouraging sensible financial planning, financial planners have warned.

Under plans confirmed this week, interest earned on uninvested cash and cash-like assets held within a stocks & shares ISA will face a 22% tax charge from April 2027.

The measure is designed to prevent savers bypassing the proposed £12,000 cash ISA limit for under-65s by holding cash within a stocks & shares ISA while continuing to benefit from tax-free interest.

Commenting on the reforms, Henrietta Grimston, chartered financial planner at Saltus, said the changes represent a significant tightening of how ISAs are expected to operate in practice, but warned that applying a 22% charge to cash holdings could push investors to remain invested longer than advisers recommend, potentially exposing them to market falls at the wrong time.

Grimston argued that cash allocations within stocks & shares ISAs are frequently part of deliberate portfolio management rather than an attempt to exploit tax advantages. "Even in the scenario where an adviser is in place, this could result in investors going against the advice of their adviser to avoid a 22% tax charge," she said.

Saltus also raised concerns that restrictions on moving money from a stocks & shares ISA back into a cash ISA could create poor outcomes. Investors with lower risk tolerance may feel pressured to stay invested to preserve their ISA benefits rather than move into cash when appropriate.

Grimston said: “Well-intentioned rules can create unintended friction and risk making saving and investing harder rather than easier.”

The Government consultation on the future of ISAs also includes proposals for a new first-time buyer (FTB) ISA to replace the lifetime ISA (LISA). The proposed product would support FTBs of all ages while offering greater flexibility for savers whose circumstances change (see https://moneyage.co.uk/Govt-launches-consultation-into-FTB-ISA.php).

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