UK savers are being urged to review their accounts following a significant Cash ISA shake‑up that has left some facing an unexpected £162 tax bill. The change follows action by HM Revenue and Customs to close a loophole that previously allowed certain interest to slip through the system without being taxed correctly.
For years, many savers believed their Cash ISA interest was fully protected and invisible to HMRC. While the core tax‑free status of Cash ISAs remains intact, the latest clampdown has revealed that not all activity linked to these accounts was being handled as people assumed.
This article explains what has changed, why some savers are receiving £162 bills, who is affected, and what UK savers should do now to avoid further surprises.
What the Cash ISA shake‑up is about
The Cash ISA shake‑up does not mean that Cash ISAs have lost their tax‑free status. Interest earned within a properly managed Cash ISA remains tax‑free.
However, HMRC has moved to block a loophole where certain actions around Cash ISAs resulted in interest being treated incorrectly. In some cases, interest that should have been taxed was either overlooked or misreported.
As HMRC’s systems improve and data sharing with banks becomes more accurate, these discrepancies are now being identified.
Why savers are seeing £162 bills
The £162 figure being mentioned reflects tax owed on interest that HMRC believes was not sheltered by ISA rules.
This typically arises when:
- Money was temporarily outside an ISA
- ISA transfers were not completed correctly
- Interest was earned before ISA protection applied
- Accounts were misunderstood as being tax‑free
The £162 bill is not a penalty. It represents income tax calculated on savings interest that exceeded allowances.
Why HMRC stepped in now
HMRC’s decision to close the loophole is linked to two major changes:
- Higher interest rates
- Improved reporting from banks
As interest rates rose, even modest savings began generating noticeable interest. This made errors and grey areas more visible.
At the same time, banks now report interest data more precisely, allowing HMRC to cross‑check records automatically.
What the loophole actually was
The loophole was not a single trick but a combination of misunderstandings and system gaps.
Common issues included:
- Assuming interest earned during transfers was tax‑free
- Holding cash in “holding” accounts not covered by ISA rules
- Exceeding annual ISA limits without realising
- Mixing ISA and non‑ISA savings
In these cases, HMRC considers the interest taxable.
Does this mean Cash ISAs are no longer safe
No. Cash ISAs remain one of the safest and most tax‑efficient ways to save in the UK.
The shake‑up does not change:
- The annual ISA allowance
- The tax‑free status of ISA interest
- The protection offered by Cash ISAs
What has changed is HMRC’s ability to spot when savings are not actually inside the ISA wrapper.
Who is most likely to be affected
Savers most likely to be affected include:
- People who moved money between ISAs
- Savers who closed and reopened accounts
- Those with multiple savings accounts
- People close to or above savings allowance limits
Pensioners and higher‑rate taxpayers are also more likely to notice tax bills due to lower savings allowances.
How the £162 amount is calculated
The £162 bill typically reflects:
- Interest earned outside an ISA
- Tax applied at the saver’s marginal rate
For example, a basic‑rate taxpayer paying 20% tax could owe £162 on £810 of taxable interest.
The exact amount varies, but £162 has become a common figure in reported cases.
Why many savers were unaware
Many savers assumed that:
- All interest linked to an ISA was tax‑free
- HMRC would automatically correct mistakes
- Small amounts would not be noticed
In reality, HMRC relies on accurate reporting. When banks submit updated data, HMRC can revisit previous assumptions.
This has caught people off guard, especially those who believed they had done everything correctly.
How HMRC contacts affected savers
HMRC usually contacts savers by:
- Letter
- Tax code adjustment
- Online account notification
The communication often explains that interest has been identified and tax is due.
These letters can look alarming, but they are usually routine corrections rather than accusations.
Does this affect past tax years
Yes. HMRC can review past tax years if interest was reported late or corrected by banks.
This is why some savers are receiving bills even though they believe the issue happened some time ago.
However, HMRC usually spreads repayment through tax codes rather than demanding lump sums.
What savers should check immediately
UK savers should:
- Review savings accounts held outside ISAs
- Check ISA transfer records
- Confirm annual ISA contributions
- Look at HMRC tax summaries
A quick review can reveal whether any interest may fall outside ISA protection.
How ISA transfers can cause problems
ISA transfers must follow strict rules to preserve tax‑free status.
Problems occur when:
- Savers withdraw cash instead of transferring
- Transfers are delayed
- Funds sit temporarily in non‑ISA accounts
During these gaps, interest earned may be taxable.
Why pensioners are often surprised
Many pensioners rely on savings interest to supplement income.
With higher interest rates, even modest savings now generate taxable income once allowances are exceeded.
Combined with the Cash ISA shake‑up, this has led to unexpected bills for older savers.
What this means for the Personal Savings Allowance
The Personal Savings Allowance still applies:
- £1,000 for basic‑rate taxpayers
- £500 for higher‑rate taxpayers
Interest above this is taxable if not protected by an ISA.
The issue arises when savers mistakenly believe interest is ISA‑protected when it is not.
What is not changing
Despite headlines, several things remain unchanged:
- Cash ISAs are still tax‑free
- ISA allowances remain the same
- No new ISA tax has been introduced
The change is about enforcement and clarity, not new taxes.
Can savers challenge the £162 bill
Yes. If you believe HMRC’s figures are incorrect, you can:
- Check bank interest statements
- Compare with HMRC calculations
- Contact HMRC to dispute errors
Mistakes do happen, especially during account transfers.
Why HMRC calls this a loophole
HMRC considers it a loophole because:
- Some interest escaped tax unintentionally
- Systems previously failed to flag issues
- Savers benefited without realising
Closing the loophole ensures consistent treatment of savings interest.
What happens if the bill is ignored
Ignoring HMRC correspondence can lead to:
- Automatic tax code changes
- Further letters
- Escalation of the issue
Responding early is always the safest option.
How savers can avoid future problems
To avoid issues going forward:
- Use official ISA transfer processes
- Keep savings clearly inside ISAs
- Track annual contributions
- Review HMRC tax summaries yearly
Simple organisation can prevent unexpected bills.
Why this matters more in 2026
With interest rates still relatively high, savings income remains under scrutiny.
HMRC’s systems are now better equipped to detect discrepancies, making oversight less likely to go unnoticed.
This makes understanding ISA rules more important than ever.
What families and advisers should know
Family members often help older relatives manage savings.
Understanding that:
- Not all interest is automatically tax‑free
- Transfers matter
- HMRC checks are increasing
can help prevent confusion and stress.
Avoiding misinformation
Some online claims suggest HMRC is taxing Cash ISAs directly.
This is false. The issue is about interest earned outside the ISA wrapper.
Relying on trusted sources is essential.
Key points to remember
- Cash ISAs remain tax‑free
- HMRC has closed a reporting loophole
- £162 bills reflect taxable interest
- Transfers and timing matter
- Checking records prevents surprises
Final thoughts
The Cash ISA shake‑up has highlighted how easily misunderstandings can arise when savings rules meet complex reporting systems. While Cash ISAs remain a cornerstone of tax‑efficient saving in the UK, HMRC’s move to block loopholes means savers must be more aware of where and how their money earns interest.
For most people, the £162 bill is not a punishment but a correction. By reviewing accounts, understanding ISA transfer rules, and keeping an eye on tax summaries, UK savers can continue to benefit from Cash ISAs without unexpected costs.
Awareness, not alarm, is the best response to this change.