ISA reform update

booneruk

https://forums.moneysavingexpert.com/discussion/comment/82071500#Comment_82071500

'Forced' - Really? I thought you could just put whatever cash you have into fractional shares of CHS2?

Mymoneynothmrcs

“Yes, investment decisions should be made at portfolio level and not each account or wrapper in isolation. However, the vast majority of people operate a stocks and shares ISA nowadays. They don't tend to spread it around, as there is little point in doing so with modern whole-of-market platforms.”

I could not agree less re the last point. Different platform have very different features and charges. 212 and ii for example re mmfs and bonds offerings. 212, ii and HL on platform fees.

”Yes. That is a possibility, but it is difficult to claim it penalises administrative arrangements when having multiple ISAs already increases administration.”

As above having isas for different purposes is a necessary as the offering and charges vary. This isn’t any more complex than having a current account and a saving account.

little point in mse if all financial products are the same as suggested.

As I said in an early post what is needed is education.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82071555#Comment_82071555

I agree with you on the education point, but the fact is platforms will adapt to any changes. All T212 needs to do is use QMMF exclusively and they will fall outside the scope. Several other platforms pay a pittance in interest, or none, and these can adapt by not paying anything going forward. There will continue to be choice and innovative products in the market, and the changes will have negligible impact on a typical S&S ISA portfolio on the whole.

It may be of interest to note there have been recent launches of alternative ETFs to CSH2 with a much lower share price, allowing better handling of residual cash in platforms such as HL, which do not allow fractional share ownership and also pay a low interest rate on cash. With ii, SWSD, and Freetrade, you can already choose a STMMF as an OIEC without taking the hit of extra charges.

Frustrating that existing investors will have to work around the changes, but those workarounds are not that onerous.

friolento

“This proposal is a tax grab, however it is presented“

Except it is highly unlikely to yield any significant amount of cash for the Treasury.

These changes appear to have been designed by someone who holds a deep grudge against people who prefer to keep cash rather than investments. Or by somebody who doesn’t understand investments, or both.

Albermarle

For some context it is probably worth pointing out that even with the reduction from £20K to £12K pa for cash ISAs, the UK tax treatment of savings interest is still very generous by international standards.

Mymoneynothmrcs

This reform is presented as encouraging long-term investment rather than long-term cash holding, which is a worthwhile objective.

However, the proposed mechanism appears poorly targeted.

1. Most of the population the policy seeks to influence does not have sufficient spare savings to fully utilise even the reduced Cash ISA allowance, so their behaviour is unlikely to change.
2. Many investors who do fully utilise their ISA allowance already invest in equities or funds. They are not using Stocks & Shares ISAs as substitute cash accounts.
3. Cash balances are an unavoidable and legitimate part of investing. Shares sold before reinvestment settle into cash.
4. Individual company dividends are normally paid as cash before the investor decides how to reinvest them.
5. Income units of authorised funds also distribute cash.
6. ISA transfers frequently involve temporary cash holdings unless an in specie transfer is possible.
7. Corporate actions, rights issues, takeovers and similar events often create temporary cash balances outside the investor's control.

Consequently, the proposal taxes many routine aspects of investing rather than only discouraging long-term strategic cash holdings. If the objective is genuinely to promote long-term investment, the measure risks imposing additional complexity and tax on existing investors without materially increasing equity ownership.

The draft legislation does not currently distinguish between temporary operational cash (an inevitable by-product of investing above) and strategic long-term cash (which is what the policy says it is trying to discourage).

Raising tax revenue is an inherent consequence of the design, because the tax applies to many legitimate cash balances that are incidental to investing rather than a substitute for it.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82073250#Comment_82073250

The issue is that while policy targets wealthy savers who have more than £12,000 excess income per year to save, the anti-avoidance measures impact those already investing to the extent they will not be able to transfer from a S&S ISA to a cash ISA and pay small amounts of tax on what you describe as temporary operational cash in their investment portfolios.

However, as has been raised before, cash ISAs are sub-optimal tools for experienced investors as they require quite a bit of active management to get the best out of, while MMF, mixed-MMF, and short-duration bond funds are set-and-forget to a degree and aren't impacted by the changes.

Cash balances in S&S ISAs, in many cases, do not attract competitive or meaningful amounts of interest. The rare providers who do pay decent interest do so using QMMF in part or in full (e.g. Trading212), which gives them a workaround to continue to pay tax free interest.

Have you got a proposed solution to handle the "temporary operational cash" carve-out you are seeking? Something like a personal savings allowance for ISAs whereby the first £100 or so of platform-paid interest is disregarded perhaps?

If raising tax revenue was really the objective, then there were some much better solutions being thrown around by the media and other sources, such as a lifetime cap, a reduction in the overall annual allowance, and a return to the regime of the 2000s and early 2010s where there were no easy places for those not wanting to take risk to go.

Anyway, I look forward to the next AI generated post that repeats the same points while overlooking all of the discussion already had.