HMRC will stop cash-like investments in S&S ISAs

MeteredOut

zagfles said:

MeteredOut said:

m_c_s said:

Leaks are starting to appear from initial talks with ISA providers: 

https://www.politico.eu/article/hmrc-to-charge-isa-savers-22-percent-on-cash-interest-under-new-plans/

1. Current view from Government is a 22% flat-rate charge on any interest from cash holdings held in stocks and shares ISAs.
2. HMRC is also considering aligning the charge with income tax bands so could be a little more painful for those in higher rate tax bands.
3. “carve-outs” possible e.g. for cash waiting to be invested.

So it looks like the Government may not actually ban cash in S&S ISAs but rather there will be a sting if you do hold cash like investments.
Still early days but industry also stating the obvious that this is a tax grab in disguise.

No big surprise here. Many of us surmised the result would be taxation of interest cash-like assets in S&S.

But I think it would be grossly unfair if it was a flat rate and any such interest did not get relief under the £1K interest free savings and the £5K Starter Rate For Savings (where applicable).

It would just make it simple to report interest on cash-like savings in S&S ISAs as per non-ISA accounts and people pay tax at their marginal rate as they do today for non-ISA accounts. That would be my bet on where we land, but with a grace period of, say, 30 days, for cash waiting to be investmented.

The article does say "cash" not "cash-like". It would be ridiculous if people who'd say built a gilts ladder or used MM funds in a S&S ISA (because you can't buy them in cash ISAs) and who perhaps haven't used the cash ISA allowance at all, or maybe had only used £12k of it, were taxed on interest earned in a S&S ISA from investments that can't even be held in a cash ISA. 

Let's see what happens. I'll not be surprised if cash-like investments (eg, MMF) are included in any interest trap. I'd hope gilt ladders are excluded.

You make a good point about those not using their £12K cash ISA allowance, and ideally they'd take that into account, but then it starts getting more complicated.

poseidon1

The only cash like gilt in my view are T Bills.

They are not tradeable ( currently) and provide a fixed cash return after relatively short periods of 3 and 6 months ( much like fixed rate BS bonds).

All other gilts by contrast are tradeable.  Price oscillates daily ( intra day). If you buy at the wrong price perfectly possible to make a capital loss if held to redemption, similarly can make a gain or loss if traded prior to redemption. Accrued income ( on purchase/sale) is a further complication that can be a hazard for fledgling investors. IL gilts can be particularly complex without guidance.

 In fact if  corporate bonds ( in general) are not to be  caught by the 'cash like' moniker under the new rules ( why should they?),  then UK gilts  with their inherent ability to make capital losses in different scenarios and their own inherent complexities, have a lot more in common with corporate bonds than a vanilla bank deposit account.

poseidon1

A current example of what could be possibly considered a 'cash like ' gilt -

https://www.hl.co.uk/shares/ipos-and-new-issues/3-month-uk-treasury-bill?lid=41c1klebia9v&campaign_name=Marketing+-+Treasury+Bills+-+Apps+Open+-+20260116+[TBOPEN1]&message_name=Email+[1]&theSource=EOR17&Override=1

wmb194

poseidon1 said:

The only cash like gilt in my view are T Bills.

They are not tradeable ( currently) and provide a fixed cash return after relatively short periods of 3 and 6 months ( much like fixed rate BS bonds).

All other gilts by contrast are tradeable.  Price oscillates daily ( intra day). If you buy at the wrong price perfectly possible to make a capital loss if held to redemption, similarly can make a gain or loss if traded prior to redemption. Accrued income ( on purchase/sale) is a further complication that can be a hazard for fledgling investors. IL gilts can be particularly complex without guidance.

 In fact if  corporate bonds ( in general) are not to be  caught by the 'cash like' moniker under the new rules ( why should they?),  then UK gilts  with their inherent ability to make capital losses in different scenarios and their own inherent complexities, have a lot more in common with corporate bonds than a vanilla bank deposit account.

There are one month (28 day) Treasury bills as well. The previous rules were that gilts and other bonds with less than five years to run on the day of purchase were considered 'cash like' and disallowed in S&S Isas*. IIRC this was to fit with the 5% test where there had to be a risk of at least a 5% capital loss at the time of investment with short durations not considered risky enough. I guess it'll depend on whether or not this test or one like it is reintroduced.

*But in theory were allowed in cash Isas if(!) the extract from Wikipedia below is correct.

https://en.wikipedia.org/wiki/Individual_savings_account#:~:text=Cash%20can%20now%20be%20held,must%20make%20the%20situation%20clear.

Sea_Shell

masonic said:

Sea_Shell said:

I'm assuming from your post that they haven't been published yet.

The consultation hasn't even started yet.

In response to the earlier post about what to do, if you have a minimum you tend to keep in STMMF, then you can already get a competitive return in a cash ISA, so there's little reason not to partially transfer out if you can. Beyond that, things are unlikely to be worse than they were in the old days of lower limits for cash, where you could buy 5 year duration fixed interest and hold to maturity.

A 5 year gilt pays a guaranteed return of 3.95% if held to maturity, and a 5 year index linked gilt pays around RPI+0.8%. What's not to like about that?

Don't they need to get a wriggle on, if these changes are going to come in for the new tax year?

What's the latest date that this can start (assuming it still hasn't), and come into force in time?

Will we see the idea dropped, and put in the 'too hard' pile?



Sorry - is this not due to come in until 2027???

eskbanker

Sea_Shell said:

masonic said:

Sea_Shell said:

I'm assuming from your post that they haven't been published yet.

The consultation hasn't even started yet.

In response to the earlier post about what to do, if you have a minimum you tend to keep in STMMF, then you can already get a competitive return in a cash ISA, so there's little reason not to partially transfer out if you can. Beyond that, things are unlikely to be worse than they were in the old days of lower limits for cash, where you could buy 5 year duration fixed interest and hold to maturity.

A 5 year gilt pays a guaranteed return of 3.95% if held to maturity, and a 5 year index linked gilt pays around RPI+0.8%. What's not to like about that?

Don't they need to get a wriggle on, if these changes are going to come in for the new tax year?

What's the latest date that this can start (assuming it still hasn't), and come into force in time?

Will we see the idea dropped, and put in the 'too hard' pile?



Sorry - is this not due to come in until 2027???

The answer to your last question is yes, so that effectively answers the others!