Reeves' ISA review

Aretnap

slinger2 said:

Of course, in the long run, one of the biggest "changes" is simply not increasing the allowance. The CPI was 102.9 in April 2017, its now about 140 and likely to be over 160 before there's any increase.

Depends which dates you want to cherry pick. The ISA allowance was £7200 (£3600 for cash ISAs) in 2010, when the CPI was 89.2. We have a long way to go before inflation catches up with the increases since then.

ivormonee

"HMRC has also revealed it plans to ban “cash-like” investments from being held in stocks and shares Isas."

I am wondering whether HMRC has the power to do this. I believe their role is to collect the tax that the law says we should pay, and not to create laws themselves.

I understood the provision in the budget was to limit cash in cash ISAs. I do not recollect anything about what we can invest in within an S&S ISA.

Perhaps I am not as clued up as I had assumed or I missed something in the budget.

Albermarle

ivormonee said:

gt94sss2 said:

Cash within Stocks & Shares ISAs will be subject to a charge by HMRC to stop circumventing on Cash ISA limits. Tests for "cash like" may capture money market and ultra short duration bonds. 

Thanks for posting. I also came here to post similar info. I just read in the media. Here is what it says:

HMRC has also revealed it plans to ban “cash-like” investments from being held in stocks and shares Isas, in the most dramatic shake-up to Isa eligibility rules in recent years.

Transfers from a stocks and shares or innovative finance Isa into a cash Isa will be banned under the new rules.

It is currently unknown how HMRC will determine whether an investment is “cash-like”, although the tax authority has confirmed in its savings newsletter that a “test” will be developed in consultation with the financial industry.

It raises concerns that investments such as money market funds may be effectively banned from stocks and shares Isas. These funds, which aim to offer a slightly higher return than cash at low risk, are often used by investors who are seeking new opportunities to buy stocks.

There is a risk that even short-dated bonds might be penalised by the taxman, which includes UK government debt and the most stable company debt. 

I am left wondering how complex they are going to make ISAs now. I am also concerned about the restrictions in S&S ISAs where we may be banned in holding our money market funds, and being penalised with a penalty by HMRC if we include them, (all of which they will track through the ISA reporting by providers to HMRC).

I have a feeling it could get very messy.

If the idea behind the reduction in the cash ISA limit was to force us to invest in UK equity, banning us from being able to invest in money-market funds in an S&S ISA is equally unlikely to make us want to invest in equity unless we were already potentially inclined to do so. This is likely to foster deep resentment for what is clearly a disguised tax-raising measure by the chancellor and nothing to do with investing for growth. 

I agree it is looking like a another layer of rules. I think we can look forward to even more questions about ISAs on the forum. 

Regarding money market funds- I do not think any newbie investors will be affected, as most likely they have never heard of them.

gt94sss2

ivormonee said:

I am wondering whether HMRC has the power to do this. I believe their role is to collect the tax that the law says we should pay, and not to create laws themselves.

I understood the provision in the budget was to limit cash in cash ISAs. I do not recollect anything about what we can invest in within an S&S ISA.

Perhaps I am not as clued up as I had assumed or I missed something in the budget

The Government will introduce these rules not HMRC. They have said they will be holding a consultation first.

See https://www.gov.uk/government/publications/tax-free-savings-newsletter-19/tax-free-savings-newsletter-19-november-2025

Similar rules on ISAs used to exist until 2014. 

eskbanker

ivormonee said:

I understood the provision in the budget was to limit cash in cash ISAs. I do not recollect anything about what we can invest in within an S&S ISA.

See this from a few pages back:

https://forums.moneysavingexpert.com/discussion/comment/81758271/#Comment_81758271

Aretnap

ivormonee said:

"HMRC has also revealed it plans to ban “cash-like” investments from being held in stocks and shares Isas."

I am wondering whether HMRC has the power to do this. I believe their role is to collect the tax that the law says we should pay, and not to create laws themselves.

I understood the provision in the budget was to limit cash in cash ISAs. I do not recollect anything about what we can invest in within an S&S ISA.

Perhaps I am not as clued up as I had assumed or I missed something in the budget.

HMRC advise the government; the government (or rather parliament) will make the actual laws.

The Budget speech is merely a summary of the legislation which is going to be introduced through Parliament - both through the annual Finance Act and through a huge volume of secondary legislation. It does not attempt to cover the fine detail of every measure that is announced.

The changes to S&S ISA rules will be introduced through secondary legislation after the government has consulted with providers on the details of the proposal.

ivormonee

Thanks for the replies. The direction of travel with the proposed consultation is clear. I just hope they take on board what "industry" says, and that "industry" represents a fair view of savers and investors, rather than what's best for them as industry organisations. Certainly though, the Govt's. view is to disallow transfers from S&S ISAs to cash ISAs, stop people from holding cash in S&S ISAs, and to also bar people from holding anything that might be similar-ish to cash, even though it's not cash and is not risk-free like a pure cash deposit. The new cash ISA limit is very likely to have implications, and potentially complex ones, for the whole ISA system more widely.

david72

The plan to disallow ISA transfers from S&S ISAs to Cash ISAs seems very unreasonable: at some point you actually need the money from your S&S ISA in order to be able to spend it on the purpose(s) that you were actually investing for (eg, for a house deposit, or for pension-like safe living costs money), and it is also very prudent to start to de-risk that money some time in advance of when you will need it.

It might be relatively reasonable to disallow S&S ISA to Cash ISA transfers for "current year" deposits (or maybe deposits made within the previous 1 - 3 years, although that would potentially create a monitoring headache), but a total ban (and also a restriction on money market funds (which I did de-risk some of my investments into earlier this year when the markets took a wobble and made me realise that I was maybe a little above my risk comfort level)) would introduce a very harsh cliff edge between riskier investments and safer investments/savings which would go completely against the wisdom of stratifying your money into layers of different risks for different timescales and purposes.

Aretnap

david72 said:

The plan to disallow ISA transfers from S&S ISAs to Cash ISAs seems very unreasonable: at some point you actually need the money from your S&S ISA in order to be able to spend it on the purpose(s) that you were actually investing for (eg, for a house deposit, or for pension-like safe living costs money), and it is also very prudent to start to de-risk that money some time in advance of when you will need it.

Well if you're withdrawing it to spend on a house deposit then you wouldn't need to transfer it to a cash ISA - because you'll be spending it on a house deposit. (Setting aside the question of whether a S&S ISA is a good place to put funds earmarked for a house deposit in the first place.)

But on the broader point about of de-risking, it will still be possible to buy low-risk investments within a S&S ISA. It's only ultra-low risk investments like money market funds and short dated gilts which are going to be excluded - basically funds whose risk profile is indistinguishable from cash savings. Medium duration gilts, corporate bond funds, mixed asset funds which include a significant money market allocation alongside other investments and suchlike, will all still be allowable.

And you will still be able to move up to £12000 per year from S&S ISA to a cash ISA by withdrawing it and resubscribing.*

Plus the ban on direct transfers to cash ISAs will only apply to people under 65 - so by the time of your life when you really need to think about moving most of your investments to cash (which personally I would argue is somewhere between "many years after 65" and "never") then you'll be able to do so.

*Some people might not be able to do that of course because they already have more than that in surplus income to save every year. That's very much a first world problem though. I'm sure they'll find a way to cope with the problems that their big pile of money presents them.

Alexland

david72 said:

The plan to disallow ISA transfers from S&S ISAs to Cash ISAs seems very unreasonable

The whole idea seems unreasonable. ISA rules were complicated enough for the average consumer without needlessly limiting people's freedoms to do whatever is suitable for their circumstances.

People don't need this nudge in possibly the wrong direction.

Are there any grown-ups left in the treasury?

Seeking fully developed people with adult minds.

Nope they are all completely useless right now.