Over 65s who will retain their full £20,000 cash Isa allowance from April 2027 won't be exempt from a brutal new tax charge, it's been revealed.

Investors aged over 65 will be clobbered with a punitive new 22 per cent levy on any interest they earn from cash in their investment Isa.

The Treasury announced on Tuesday it will introduce this new tax for investors holding cash in these accounts from April 2027, which caused outrage among private investors.

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 remainder (£8,000), they can put it into stocks and shares.

Meanwhile anyone over 65 are retaining their £20,000 allowance as pensioners often favour safer cash over risky investments.

The new tax charge has been blasted by industry leaders who have branded the rule 'draconian' and 'disappointing'.

The Exchequer has confirmed the new charge announced earlier this week is designed to stop younger savers flouting impending Isa reforms.

For example, someone under age 65 may place their remaining £8,000 Isa allowance into cash in an investment Isa, and reap the benefits with tax-free interest - although rates on investment platforms for keeping it in cash aren't nowhere near as generous as what's on offer at banks and building societies. 

However, even older investors with no cash Isa limit changes to dodge will not be exempt from this punitive charge.

The charge will be applied as a blanket levy, no matter the age of the investor or their reason for holding it.

Keeping some cash in a stocks and shares Isa is a vital function for older savers, who may want to derisk their portfolio by cashing in investments during times of high market volatility.

These cautious investors cannot afford to take on as much risk as ones under 65, so they are more likely to gradually derisk by keeping some of their portfolio in cash.

But this cautious thinking will now be targeted as the Treasury will soon pilfer a chunk of the interest earned.

They will also be penalised for other legitimate reasons that investors hold cash in their stocks and shares Isas, such as paying fees, selling investments ahead of a big purchase, or receiving dividend income,

However, these older savers can still hold as much as 99 per cent of their portfolio in cash-like investments – money market funds – if they want some exposure to low-risk investments, the one saving grace of the Treasury's plans.

A Treasury spokesman says: '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.

'Savers can still hold up to £12,000 in a cash Isa, and those 65 and over keep the full £20,000 allowance.'