Isa investors have had a torrid week, as the Treasury revealed it will slap a 22 per cent tax charge on interest earned from cash sitting in stocks and shares Isas.

In one of Chancellor Rachel Reeves's last acts before she is set to leave Number 11, she unveiled the tax which will hit those who keep cash in their investment Isas.

From 6 April 2027, savers under the age of 65 will be able to put a maximum of £12,000 into a cash Isa and if they want to invest the remaining £8,000 they can put it into stocks and shares.

The move was designed by Reeves to encourage Britons to invest in the stock market and boost the country's flagging economy.  

This week's new tax rule will stop savers simply placing the remaining £8,000 of their Isa allowance into cash in their investment accounts, and earning interest on that money tax-free. Instead, the money will need to be used to buy stocks and shares.  

But it has prompted an outpouring of backlash from investors who feel the changes are a brutal betrayal of the tax-free aspect of the wrappers.

As the dust settles, we've asked four experts what they think about the new rule, and how it will hit investors. 

Jason Hollands, investment platform BestInvest: 'It's a barely disguised stealth tax'

The proposed 22 per cent charge on cash interest within a stocks and shares Isa is a barely disguised stealth tax, which undermines the tax-free promise of Isas. 

In my view, it is complete overkill. [The Government] is trying to address a problem before understanding whether or not people really will try to circumvent the reduced limit on cash Isas next year in this way.

What it will do is add complexity and reduce the flexibility of stocks and shares Isas, where it is perfectly normal and reasonable that genuine investors will, from time to time, hold cash in their accounts.  

This can be money awaiting investment, cash resulting from dividends being paid out, or because people are nervous about the markets and want to temporarily put some money on the sidelines. The levy will penalise investors from making sensible decisions.

If there is a relative silver lining, at the least the proposals to clamp down on 'cash like' investments – money market funds – are far less draconian than feared. At one point it seemed these might be barred altogether for people under 65. 

It provides an option for people who want to reduce risk in their stocks and shares Isa account without incurring the 22 per cent charge on cash interest.

Holly Mackay, financial research firm Boring Money: 'The Treasury is cutting its nose off to spite its face'

I think these changes have been drafted by civil servants who tied themselves in knots using a massive sledgehammer to attempt to crack a nut. Our priority is to get more people saving more money in the right products. 

With these changes the Treasury is cutting off its nose to spite its face. There is a huge push to get more consumers to invest. Yet Boring Money data show that 42 per cent of cash-only savers say that simplicity is the most important thing they'd look for if choosing an investment product. 

Isas are supposed to be simple. But the four main Isa variants have four different contribution amounts for different ages, and now we will have different terms and conditions, different levies on cash held and different rules on qualifying products.

Tom Selby, investment platform AJ Bell: 'It muddies the tax-free Isa promise'

The proposed 22 per cent charge on interest paid on cash held in a stocks and shares Isa was neither an inevitable consequence of the cash Isa allowance cut nor a necessary intervention backed by evidence. 

Furthermore, it risks muddying the fundamental tax-free promise that has underpinned Isas for a generation.

A similar policy outcome could have been achieved by preventing firms from marketing stocks and shares Isas as cash vehicles, or by allowing cash to be held tax-free where it is clearly being used for investment purposes.

Instead, the Treasury has reached for a blunt instrument that fails to recognise the ordinary role cash plays in investing – from paying platform fees to managing risk as people approach retirement or other financial goals.

Rachael Griffin, wealth manager Quilter: 'It's throwing the baby out with the bathwater'

There is no doubt that the UK has a deep-rooted love affair with cash that needs addressing. However, some of the Isa changes risk throwing the baby out with the bathwater.

It is welcome that Government has listened to industry concerns and taken a more proportionate approach to cash‑like holdings within stocks and shares Isas. Recognising the role that cash and near‑cash assets can play in supporting more cautious investors is important if more people are to take their first steps into markets with confidence.

However, the introduction of a 22 per cent charge on cash interest, alongside new rules on money market funds, adds complexity at precisely the wrong time. 

Applying a flat-rate charge regardless of an individual's tax position effectively reduces returns in a way that may be difficult for consumers to understand, while measures aimed at a narrow behaviour risk creating wider uncertainty.

The simplicity of the Isa has always been its tax-free status, and introducing a charge on cash interest risks undermining that clarity. 

If consumers no longer clearly understand the benefits, there is a real danger it could deter engagement altogether, which would be a poor and clearly unintended outcome.