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

Sea_Shell

Was the Telegraph, but story here too...

https://www.gbnews.com/money/rachel-reeves-delays-isa-overhaul

zagfles

Maybe the simplest thing would be to cut the ISA limit to £12k and introduce a new thing, say a PEP (personal equity plan) with restricted investments (equities, nothing cash like), with a limit of £8k, or perhaps a combined limit of £20k across the ISA and PEP with £12k max in the ISA.

Then they can leave existing ISAs alone with no new rules, allow transfers between cash and S&S ISAs etc.

SnowMan

Latest tax-free savings newsletter came out on 4th June

https://www.gov.uk/government/publications/tax-free-savings-newsletter-21/tax-free-savings-newsletter-21-june-2026

Most noteworthy for what's not in there than what's in there. No mention of the £12,000 cash ISA limit for 2027/2028 or the rules that will be introduced to avoid circumvention of the lower limit for cash ISAs. Tick tock tick tock.

Pat38493

There seems to be some movement on this now as it was discussed on R4 this morning that HMRC says there will be a 22% charge on any interest paid on cash held in S&S ISA.

Also an article in the Guardian and FT (FT behind paywall so I can’t read it).

No mention of “cash like” investments - does anyone have the official source for this discussion?

Edit: Found it https://www.gov.uk/government/publications/fiscal-events-2026-factsheets/isa-reform-2027-anti-circumvention-rules-factsheet

Seems like you will be fine to hold money market funds in your S&S ISA as long as it is not 100% of the allocation…. Stand down from panic stations!!! :)

Actually - back to panic stations - the way this announcement reads, there is a “flat rate” 22% charge on interest paid on cash in S&S ISA - regardless of tax allowances of the taxpayer - is that really correct?

wmb194

https://forums.moneysavingexpert.com/discussion/comment/82045816#Comment_82045816

"Actually - back to panic stations - the way this announcement reads, there is a “flat rate” 22% charge on interest paid on cash in S&S ISA - regardless of tax allowances of the taxpayer - is that really correct?"

Yep. It's a, "charge" not an income related tax. It would probably be too complicated to bring Isa interest into the usual income tax regime.

The workaround might be to make good use of flexible S&S Isas and sweep cash in and out of them to taxable accounts but this might not be necessary depending on how the rules for MMFs shakeout. For higher and upper rate taxpayers a 22% charge vs. 40% and 50% (or 60%+…) tax on interest in taxable accounts it would still be beneficial.

Pat38493

https://forums.moneysavingexpert.com/discussion/comment/82045843#Comment_82045843

I didn’t even know you could get flexible S&S ISA - I thought it was only cash ones - is there a list of providers that currently offer flexible ones?

The other workaround is to just use MMF for all cash you want to hold but make sure you are not 100% in MMF.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82045855#Comment_82045855

Quite a few of the newer providers do, and Charles Stanley Direct from the traditional providers.

We could see some innovation here where cash is swept into a QMMF. Several already use QMMF, but only for part of the interest.

strawb_shortcake

I hold some cash in my S&S LISA, and this is used to pay fees and then buy more funds as and when. The cash I hold is less than 10% of my fund holding and well below the planned £12k cash ISA limit as of next year - will this very small amount of interest still be charged 22%?

masonic

https://forums.moneysavingexpert.com/discussion/comment/82046080#Comment_82046080

Only S&S ISAs and Innovative Finance ISAs have been mentioned in the government text, not Lifetime ISAs. So possibly you won't see a charge.

Pat38493

https://forums.moneysavingexpert.com/discussion/comment/82046076#Comment_82046076

Seems like the T212 ISA is flexible, which I did not realise until I looked it up this morning.