ISA reform update

masonic

https://forums.moneysavingexpert.com/discussion/comment/82045311#Comment_82045311

A very good question. It's going to be difficult on providers to get this right, assuming their older investors will be exempt. Or perhaps they'll just have to submit annual returns for everyone and HMRC will decide whose ISA interest counts and whose doesn't.

friolento

Also in the FT…………. so the last word might not have been spoken yet on those ISA changes

NB. I trust this will not be seen as a political debate, or encourage such debate. It's just a factual remark.

eskbanker

The post-budget tax newsletter stated that the new restrictions wouldn't apply to over-65s:

The following rules will be introduced to avoid circumvention of the lower limit for cash ISAs:

- no transfers from stocks and shares and Innovative Finance ISAs to cash ISAs

- tests to determine whether an investment is eligible to be held in a stocks and shares ISA or is ‘cash like’

- a charge on any interest paid on cash held in a stocks and shares or Innovative Finance ISA

These rules will apply to investors under the age of 65.

but perhaps that's not as binding as might have been suggested?

My expectation remains that ISA providers will effectively split their product offerings into a 'senior' ISA (same as current) and an under 65 variant (with all the new constraints), as I don't see how they can manage the different rules within the same products otherwise!

friolento

https://forums.moneysavingexpert.com/discussion/comment/82045329#Comment_82045329

Thanks, that's reassuring for an oldie like myself.

Not sure the providers could just have two lots of ISAs - - - for starters, they will have a vast number of ISAs on their books, used by under 65s and by seniors. Even if they introduced an "under 65s", most of those holders will sooner or later end up in the senior cohort. Everything seems a huge new admin demand on ISA Managers. No wonder they are lukewarm at best about the proposed changes.

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/82045329#Comment_82045329

I think the FT (& MSE) have mis-interpreted. Taken with the above guidance, it suggests to me that a 100% MMF would no longer be eligible to be held in a S&S ISA, not that there's a charge only if 100% of your portfolio if made up of a MMF.

m_c_s

What a dogs breakfast of a policy. This is purely a tax grab from this Government. A summary from IFA magazine website today:

https://ifamagazine.com/governments-complex-anti-circumvention-isa-rules-are-riddled-with-unintended-consequences/

How these rules will work in practice

“The new rules mean a charge of 22% will be applied to interest paid on cash in investment ISAs. This is a flat rate charge, meaning the same rate applies whether the ISA account holder is a basic rate taxpayer, higher rate taxpayer, or indeed doesn’t pay any income tax. 

“The ISA holder cannot invest 100% of their (non-cash) investment portfolio in money market funds, or that would be classed as a ‘non-qualifying’ investment. This means they could invest 99% in money market funds and 1% in, say, UK equities and that would be allowed. 

“It also means they could hold 50% of their portfolio in cash, but if the remaining 50% was held in money market funds that wouldn’t be allowed. Whereas if they held 49% in money market funds and 1% in UK equities, this would be permitted under the rules. 

“The rules on charges on cash interest and not holding 100% of your investment portfolio solely in money market funds also apply regardless of how old the ISA holder is. This is far simpler to administer than applying the new age 65 rules universally, but will likely exacerbate the scarcity mindset around Cash ISAs and lead to more transfers between investment ISAs and Cash ISAs before April next year.

“However, the lower Cash ISA allowance of £12,000 and the ban on transfers from Stocks and Shares ISAs to Cash ISAs only apply to those ISA holders who are younger than 65.”

masonic

https://forums.moneysavingexpert.com/discussion/comment/82045509#Comment_82045509

Hardly a tax grab if it really only takes a token toe-dip into the world of investments to maintain the status quo. It'll barely raise anything.

If IFA magazine have this right, then it is about the gentlest nudge possible with zero consequences for anyone willing to put a few quid in a tracker fund alongside the cash-like holdings.

Alfredi

Presumably I can still buy short dated gilts in my S&S ISA without paying income tax. It seems wasteful to deposit with a bank covered by a government guarantee when I can buy gilts and get the guarantee directly, and buy and sell them instantly.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82045539#Comment_82045539

Gilts have not been mentioned as an investment type that would be subject to a tax charge. Even with the stricter rules of the past, gilts bought with >5 years to maturity were ok to hold.

friolento

https://forums.moneysavingexpert.com/discussion/comment/82045509#Comment_82045509

Hmh. Not so simple then.

I really hope someone stops the implementation of these complexities.