New ISA rules - hypothetical scenario for S&S ISA

Behindbutcatchingup

I was recently told in an email from Vanguard that, as part of the new ISA rules, from April 2027 'Transfers from a stocks and shares ISA to a cash ISA will no longer be allowed'.

Imagine that I have money in S&S ISA, however I am worried about a potential global crash (e.g. AI bubble pop or similar) and want to move my money to a less/non volatile product.

Once the new ISA rules come into effect, I can no longer move the S&S ISA to a Cash ISA. So it seems my only option would be to remove money out of ISA altogether, therefore diminishing the ISA cash that I have spent years building up, which would be a big shame indeed.

Does this sound right? Am I oversimplifying or just down right incorrect? Enlighten me :)

Aretnap

You can still keep it within the S&S ISA and move it into lower risk funds if you want to - switching from 100% equities to 100% cash because of worries about some AI stock prices would be bad investing. But you can also keep it as cash within the S&S ISA if you want to - the new (old) rules just mean that any interest paid on that cash balance would be taxable.

wmb194

https://forums.moneysavingexpert.com/discussion/6673996/new-isa-rules-hypothetical-scenario-for-s-s-isa

No, it appears bond funds and MMFs will still be allowed just not an entire portfolio in MMFs and you can hold cash, it's just that interest will face a, "charge" of 22%. If you have a flexible S&S Isa you could temporarily withdraw the cash to a taxable bank account and then replenish the S&S Isa before the tax year ends. It could be that Vanguard doesn't offer the widest range of low risk options though and you might have more with another broker.

webdesignUK

New rule says that if you have cash in S&S ISA you will need to pay 22% on interest. Just on interest you make.

dunstonh

Imagine that I have money in S&S ISA, however I am worried about a potential global crash (e.g. AI bubble pop or similar) and want to move my money to a less/non volatile product.

You wouldn't move the product. You would move the investments inside the wrapper.

Typically by using a range of defensive assets such as gilts, bonds and money market. You could also reduce the amount of equities in the volatile industries that you are concerned about.

Once the new ISA rules come into effect, I can no longer move the S&S ISA to a Cash ISA. So it seems my only option would be to remove money out of ISA altogether, therefore diminishing the ISA cash that I have spent years building up, which would be a big shame indeed.

That is an option, but it's not the only option.

masonic

You don't mention how old you are, but once you reach the age of 65, you would be allowed to transfer from S&S to cash ISA. Before then you are free to reduce risk without a tax charge, but not to the extreme of everything in cash.

It seems a mix of Vanguard Lifestrategy 20 and Vanguard Sterling Short-Term Money Market Fund would be ok to hold.

Ocelot

https://forums.moneysavingexpert.com/discussion/comment/82048795#Comment_82048795

Apparently the over-65 age rule applies at the start of the next tax year after one's 65th birthday.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82049514#Comment_82049514

Not according to official sources:

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

In fact, someone turning 65 on 5th April 2028 will benefit from the exemption for the whole of the 2027/28 tax year based on this factsheet, so 365 days of them being 64 (365 due to the leap year).

Jordan72

I have written to my MP expressing my outrage at these ridiculous proposals to change the S&S ISA rules. I suggest others do the same - the more than do so the more likely they might be watered down. The proposal that transfers out to from S&S ISAs to cash ISAs is banned but the reverse is OK is ridiculous. None of these idiotic proposals will encourage new investors - in fact they opposite is true - ludicrous and punishing 'rules' like these will actively discourage potential new investors.

nuffznuff

I have a scenario which may not have been considered.

I have £1,000 in an indexed ISA fund - Fund A - with ISA Provider (false name used to protect the guilty). I want to sell my entire stake in Fund A, which with ISA Provider has to be converted into cash first. Then, when the funds have cleared, I can invest in Fund B.

The cash may only be sitting there for a day or two at most, and will earn interest whilst the £1,000 is held as cash.

The interest I actually earned was the vast sum of £0.09. So for that 9p, am I expected to pay 22% tax - £0.019? Not that it matters for this purpose, but I am over 65. (I seem to recall that HMRC will write off amounts of £5 or less owed to either HMRC or the taxpayer, but that information is quite old and I don't know if it still holds true).

wmb194

https://forums.moneysavingexpert.com/discussion/comment/82052203#Comment_82052203

Yes, the provider will withhold 1 or 2p depending on how it works the rounding. For the longest time 20% tax was withheld at source on savings account interest and it worked this way even on trivial amounts.