Jason Hollands, managing director at investment platform Bestinvest, warned the charge amounted to an “indirect tax” for savers and said it risked “undermining the tax-free promise of Isas”.
He said: “It is perfectly reasonable for a genuine investor to have periods when they are holding cash. You have money in your account, you don’t often invest it immediately because you want to secure the allowance, and then decide where you want to invest it.
“There are periods where people come out of the markets because the outcome is uncertain. Between trades and the payment of dividends you will have cash sat around in a portfolio.
“A more elegant way than just having a punitive charge would be to have a time limit. If the objective is to stop people who are never going to invest gaming the system then you could introduce a three-month grace period to get something invested.”
Mr Hollands added that while the 20pc charge would not be a new invention, the levy existed at a time of historic low interest rates, meaning in practicality it affected few savers.
