ISA reform update

Gsaver1

At present I have 25% in four funds. I hold the rest in a STMMF. I sell some of my STMMF each month and buy into my four funds. Is it time for me to sell my STMMF and transfer it to a Cash ISA and transfer the same amount into my S&S ISA each month to buy into my four funds?

masonic

https://forums.moneysavingexpert.com/discussion/comment/82045564#Comment_82045564

Based on the common interpretation of this latest statement, you'd be fine continuing to do that as you can have "some" STMMF without a tax charge as long as it isn't "all" STMMF. But it would be worth reviewing when more of the detail is known. The whole thing could be axed or delayed yet.

Sea_Shell

It just seems like unnecessary fiddling with the rules for little or no gain, but with administrative hassle for the FS industry and savers/investors.

Just because they can ☹️

masonic

https://forums.moneysavingexpert.com/discussion/comment/82045709#Comment_82045709

The stated aim was to nudge people into taking their first steps investing, which if the rules are as they seem to be, is ostensibly the case. But the fatal flaw is the lack of an education piece.

friolento

https://forums.moneysavingexpert.com/discussion/comment/82045716#Comment_82045716

exactly. It’s like saying from tomorrow everyone must ride a bike and we will fine you if you fall off. But we won’t tell you how to learn to ride a bike, you just have to figure it out by yourself.

Notepad_Phil

Edited to add - ignore what I've said below, there's another document that gives more detail, so this might not be an issue. But to be honest, the chances of future changes coming in that reduce the ability to hold cash might still end up with my kids changing their approach.

I wouldn't mind these proposals so much if they allowed cash like funds to be held but they were then taxed at this 22% rate. It's the absolute non-availability of them that I'm against as it will limit how people can de-risk at a time that is suitable for them and so might end up deterring equity investing rather than encouraging it.

E.g. my kids have been putting money away into S&S ISAs to potentially use when they get to their 40s and 50s - their plan was to slowly move towards a majority of mmf and similar funds and cash ISAs as they got closer to those ages, but now the likely best they'll be able to do is go to 40/60 equity funds. So now they're considering moving everything they've currently got to cash ISAs now, and then use cash ISAs and 40/60 funds rather than 100% equity for the majority of their non-emergency savings.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82045856#Comment_82045856

I've not seen anything suggesting non-availability. It is a 22% charge if you move everything to cash/MMF. The question is where the line is drawn - is £25 in an equity fund enough?

bristolleedsfan

https://forums.moneysavingexpert.com/discussion/comment/82045079#Comment_82045079

Potential loophole widely reported last month after first being mentioned in Telegraph ——-

"However, investors who place just 1p into equities while maintaining 99.9 per cent of their holdings in money market funds would face no penalties whatsoever"

https://www.msn.com/en-gb/money/other/rachel-reeves-s-tax-raid-on-isas-to-fail-as-1p-loophole-could-protect-savers/ar-AA247GAI

Notepad_Phil

https://forums.moneysavingexpert.com/discussion/comment/82046061#Comment_82046061

Edited to add, ignore what I've written below, you may be right.

I've not seen anything suggesting non-availability. It is a 22% charge if you move everything to cash/MMF.

But that's not what the policy document says, it says:

To prevent circumvention of the lower Cash ISA limit, the rules will introduce a 22% charge on interest paid on cash holdings held in Stocks & Shares and Innovative Finance ISAs (non Cash ISAs), prevent transfers from non Cash ISAs into Cash ISAs for the under 65s, and prevent holding 100% Money Market Funds in non Cash ISAs.

So nothing about it being okay if e.g. your portfolio holds 99.9% of MMF funds and £25 in a equity fund. It only talks about the prevention of holding 100% MMF funds, which I take to be any 100% MMF funds even if you also have a small amount of equity funds.

Now I have heard several commentators talking about this in terms of it being fine and you won't be charged interest if you hold interest type funds as long as you have a small amount of equity, but that's not what is in the actual policy document, and would be the most stupidest easy way to breach the government's supposed intentions if that's what they actually allow.

It may also be that they will allow a fund to be held which contains within it 99.9% MMF instruments and 0.1% equity, but again I'd suggest that not even the most stupidest government would not think of that possibility and block it.

Hopefully the next policy document gives much more detail. Anyone know when that's likely to be?

wmb194

https://forums.moneysavingexpert.com/discussion/comment/82046121#Comment_82046121

"Now I have heard several commentators talking about this in terms of it being fine and you won't be charged interest if you hold interest type funds as long as you have a small amount of equity, but that's not what is in the actual policy document, and would be the most stupidest easy way to breach the government's supposed intentions if that's what they actually allow."

Based on its draft rules, this is what the Telegraph reported was pointed out to HMRC by institutions last month. As per yesterday's announcement, HMRC may have fixed this now by simply prohibiting MMFs.