New £12,000 limit on Cash ISA

Madeinireland101

Ok so in the future we will apparently limited on how much we can put in a Cash ISA. Apparently we will still be able to put a total of £20,000 in a ISa but £12,000 in a cash ISA and the rest I presume in a stocks and shares ISA.

if that’s the case then how are we limited other than by the range of companies we can use.  Stocks and Shares ISA still allow you to hold your money in cash and pay interest on it - I’m struggling to see how we lose.

Also what’s to stop you transferring it from the Stock and Shares ISA to your Cash ISA after a year or two - which you can easily do now?

Have I missed something?

x44

It is quite possible that HMG will do the same as they did with tax free PEP's -(was it 15 years ago) when there was a similar difference between the cash component amount allowed and the S&S part.

They simply decreed that any interest payments, as opposed to dividend payments, arising from within a S&S PEP (ie from money Market type funds) would be fully taxable and would not benefit from any of the tax free PEP provisions.

Newbie_John

I think they will simply block them.

Look at LISA, you can put there £4k a year now and remaining £16k to other types of ISA.
Can you transfer back? No.

But yeah, short term money market, interests on uninvested cash.. or even buying gilts.. which are more secure than cash ISA.
Let's wait for 2027 details.

Aretnap

People have short memories. 

The cash ISA limit was lower than the total ISA limit until 2014. In those heady days to stop people gaming the system 

(1) Money could not be transferred from a S&A ISA to a cash ISA (though it could be transferred the other way) 
(2) Interest paid on a cash balance in a S&S ISA was taxable
(3) Very low risk investments such as money market funds, short dates gilts, or funds comprising mainly short dated gilts could not be held within a S&S ISA

AFAIK the government hasn't published the finer details of how they will stop people using S&S ISAs as surrogate cash ISAs this time round, but all of these restrictions strike me as fairly easy to reintroduce.

wmb194

Aretnap said:

People have short memories. 

The cash ISA limit was lower than the total ISA limit until 2014. In those heady days to stop people gaming the system 

(1) Money could not be transferred from a S&A ISA to a cash ISA (though it could be transferred the other way) 
(2) Interest paid on a cash balance in a S&S ISA was taxable
(3) Very low risk investments such as money market funds, short dates gilts, or funds comprising mainly short dated gilts could not be held within a S&S ISA

AFAIK the government hasn't published the finer details of how they will stop people using S&S ISAs as surrogate cash ISAs this time round, but all of these restrictions strike me as fairly easy to reintroduce.

Below is what Google's AI throws up. Apparently there was a, "cash-like" test. As you say, it should be easy then: just copy and paste the pre-2014 rules. 

"Here is a breakdown of the rules in 2014:

• Before July 1, 2014: There were stricter rules. Securities acquired before this date had to satisfy a "5% test", which meant the investor should not be "certain, or near certain, of the return of 95% or more of their initial investment" within five years. This test effectively excluded very short-dated gilts and similar cash-like investments from S&S ISAs.
• From July 1, 2014 (with the introduction of the New ISA or NISA): The rules were significantly relaxed.
  • The "cash-like" test was removed.
  • Securities, such as retail bonds and short-dated gilts, with less than 5 years to run to maturity became eligible for S&S ISAs.
  • Cash itself could be held tax-free within a S&S ISA if the provider allowed.
  • Money market funds were also permitted in a S&S ISA under the new rules. "

masonic

x44 said:

It is quite possible that HMG will do the same as they did with tax free PEP's -(was it 15 years ago) when there was a similar difference between the cash component amount allowed and the S&S part.

They simply decreed that any interest payments, as opposed to dividend payments, arising from within a S&S PEP (ie from money Market type funds) would be fully taxable and would not benefit from any of the tax free PEP provisions.

This also carried over into ISAs for a good number of years.

Things are a little different now, with synthetic money market ETFs like CSH2, which seem to be getting away with classifying themselves as equity funds and paying notional dividends (although the fund is accumulating). The underlying holdings of the fund are US tech stocks mainly, but it tracks SONIA through a derivative.

dcs34

Aretnap said:

People have short memories. 

The cash ISA limit was lower than the total ISA limit until 2014. In those heady days to stop people gaming the system 

(1) Money could not be transferred from a S&A ISA to a cash ISA (though it could be transferred the other way) 
(2) Interest paid on a cash balance in a S&S ISA was taxable
(3) Very low risk investments such as money market funds, short dates gilts, or funds comprising mainly short dated gilts could not be held within a S&S ISA

AFAIK the government hasn't published the finer details of how they will stop people using S&S ISAs as surrogate cash ISAs this time round, but all of these restrictions strike me as fairly easy to reintroduce.

I guess a key difference is the ISA landscape (especially S&S ISA market) is now much more dominated by new fintech / app-based accounts and more 'DIY'-style investing (i.e. less regulated oversight) compare to the 2000s/2010s?

It was easier to have faith you were following all the rules when you had to get a physical share certificate from a company; more chance to fall foul of the rules if one just has to press a couple of buttons on your smartphone...

phlebas192

Aretnap said:

People have short memories. 

The cash ISA limit was lower than the total ISA limit until 2014. In those heady days to stop people gaming the system 

(1) Money could not be transferred from a S&A ISA to a cash ISA (though it could be transferred the other way) 
(2) Interest paid on a cash balance in a S&S ISA was taxable
(3) Very low risk investments such as money market funds, short dates gilts, or funds comprising mainly short dated gilts could not be held within a S&S ISA

AFAIK the government hasn't published the finer details of how they will stop people using S&S ISAs as surrogate cash ISAs this time round, but all of these restrictions strike me as fairly easy to reintroduce.

A fair number of people never had ISAs prior to 2014 so it's not necessariliy a case of short memories but simply no experience of that environment. That said:

 - back then all interest was taxed at source (unless you applied for it to be paid gross because of low income) so it was simple for HMRC to collect tax from cash interest within an ISA. Since that's no longer the case, are people going to have to declare S&S ISA interest?

- there were supposed to be other limits on cash held within a S&S ISA (and previously PEP) but AFAIK that was never enforced - I certainly held significant amounts (>25%) for several years.

 - S&S ISAs could only be transferred to another S&S ISA. They can now be transferred to cash ISAs.

All in all, things are very different now. We will have to await the details but the whole structure makes it much harder to implement such rules now than it was before.

MA260

You would expect restrictions on transfers between Cash and S&S ISA's otherwise people would just put money in S&S ISA and transfer to Cash. If the aim of the change is not to raise tax revenue but to encourage people to invest then you would expect them to leave things broadly as they are as they are halfway to getting someone to invest if they open a S&S ISA and put 8K in it. They are not going to get a great deal of tax revenue on 8K sitting in a ISA.   

zagfles

phlebas192 said:

Aretnap said:

People have short memories. 

The cash ISA limit was lower than the total ISA limit until 2014. In those heady days to stop people gaming the system 

(1) Money could not be transferred from a S&A ISA to a cash ISA (though it could be transferred the other way) 
(2) Interest paid on a cash balance in a S&S ISA was taxable
(3) Very low risk investments such as money market funds, short dates gilts, or funds comprising mainly short dated gilts could not be held within a S&S ISA

AFAIK the government hasn't published the finer details of how they will stop people using S&S ISAs as surrogate cash ISAs this time round, but all of these restrictions strike me as fairly easy to reintroduce.

A fair number of people never had ISAs prior to 2014 so it's not necessariliy a case of short memories but simply no experience of that environment. That said:

 - back then all interest was taxed at source (unless you applied for it to be paid gross because of low income) so it was simple for HMRC to collect tax from cash interest within an ISA. Since that's no longer the case, are people going to have to declare S&S ISA interest?

- there were supposed to be other limits on cash held within a S&S ISA (and previously PEP) but AFAIK that was never enforced - I certainly held significant amounts (>25%) for several years.

 - S&S ISAs could only be transferred to another S&S ISA. They can now be transferred to cash ISAs.

All in all, things are very different now. We will have to await the details but the whole structure makes it much harder to implement such rules now than it was before.

Yup - I doubt they'll bother. The vast majority of people are clueless about money market funds, gilts etc and if their bank or building society tells them they can only put £12k in the cash ISA they'll leave it at that and not try to game the system by using cash like investments in a S&S ISA cos they don't understand them. 

hoc

This is written by the most senior editor of Morningstar UK:

"From April 2027, the maximum that people will be able to hold in cash tax-free in an ISA will be £12,000. The overall cash ISA allowance of £20,000 will remain, meaning any money held above that £12,000 threshold must be invested in stocks and shares to remain free of tax."

https://global.morningstar.com/en-gb/personal-finance/rachel-reeves-autumn-budget-what-new-tax-isa-pension-changes-mean-you

Perhaps he has accidentally revealed the next twist.

The government ditched the 2% addition to income tax at the last minute so we have an increasingly complicated scheme of values. In modern speak it is bound to be 'simplified' in the next year. LISA elimination will be the first step. Then the dominoes fall.