New ISA rules - hypothetical scenario for S&S ISA

jimjames

I have written to my MP expressing my outrage at these ridiculous proposals to change the S&S ISA rules.

The rules are only returning to a (more lax version) of the status before 2014. It's not really outrage, I've been investing for 30 years and these will still have no impact on me. My provider doesn't pay interest on cash held in the account so no tax is due.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82052153#Comment_82052153

Presumably your outrage is on behalf of those younger than yourself?

You indicated in a past post that you are over 65. As such unaffected by the rule change, so you personally have nothing to complain about. However no doubt your MP will appreciate your altruism.

Jordan72

Yes, I am not entirely self-centred so I am partially complaining on behalf of others. However, like everyone else I will be affected by the outrageous proposal to tax interest on cash in S&S ISAs. This is not, imo, to prevent circumvention at all - it is a blatant and hamfisted tax-grab and potentially the thin end of a wedge.

Three of my four platforms pay interest on cash balances - IG and Trading 212 pay 3.75% whilst ii pays a lesser amount. I am not holding cash to circumvent anything as my £20K allowance goes fully into my S&S ISAs every year. I often have substantial cash balances - I currently have 78 dividend payments a year, which are not necessarily invested immediately plus I have the proceeds of sales which - again - may not be reinvested immediately. Why should legitimate shareholders be penalised for entirely reasonable cash holdings that have NOTHING to do with circumventing "the rules"?

masonic

https://forums.moneysavingexpert.com/discussion/comment/82053651#Comment_82053651

It is clearly not a tax grab as it probably won't raise as much tax as it will cost to run, so it is a "hamfisted" nudge to invest your cash balance, which is probably earning a derisory rate of interest anyway.

Edit: I see you edited in some info about platforms and rates. IG and Trading212 use Money Market Funds to generate interest on cash. Currently they don't use them exclusively, but a simple move to do that would remove the tax charge from investors like you. Perhaps it is worth raising your concerns with them and seeing if they have any plans to "improve" the tax efficiency of their cash interest in 2027/28.

Ms_Money_Penny

I am appalled at the new S&S Isa changes too! I plan to retire at 60 and the thought of not being able to sell my stocks to transfer to a cash ISA is worrying. I am thinking of selling my entire S&S ISA soon and transfer everything to a cash ISA. I’ve had enough of the up and downs of the stock market over the last 5 years. I can live on the interest from the cash ISA. These changes mean less people will invest…

masonic

https://forums.moneysavingexpert.com/discussion/comment/82053769#Comment_82053769

As mentioned in the other thread you brought this up, moving 100% to cash on day 1 of retirement is both unnecessary and probably unwise. You will be able to continue drawing from low risk investments in a S&S ISA after these changes come into effect.

seacaitch

Although these ISA changes, ostensibly to prod some people towards investing, may look "clunky", it seems like the consultation process has at least helped to make their implementation much less bad than I'd feared…

Crucially, it's been recognised (for now!) that "cash" (cash-like) has a legitimate role to play in the portfolios of investors, whether that be longer-term or shorter-term allocations — there are a myriad legitimate reasons as discussed previously for holding chunks of "cash" within portfolios. I'm relieved that this role has been recognised and preserved, rather than simply reverting to all of the pre-NISA (pre-2014) rules, preventing us holding debt securities with maturities < 5 years and suchlike, which would have been a major step backwards.

Having said that, I don't really trust that this/next government will not further "tweak" (ie. remove) this ability to hold cash-like funds and shorter term bonds, and actually return to the pre-2014 state! Politically, it's easier (less controversial) to do this via two smaller steps than one larger step: we're getting the first step next year, and once the dust has settled in a couple of years time on the Cash ISA allowance reduction, it'd be easy to follow with a second step, a "technical change" to cash-like funds/securities ISA eligibility. Cynical, moi? 🤷

The main remaining unfortunate aspect of these changes is the loss of transfers from S&S→Cash, which in trying to prevent circumvention of the cash ISA subscription rules, does impact legitimate investors. This is a shame.

These two latter points above — not trusting Govt not to make further ISA-eligibility changes, plus us losing the ability to transfer S&S→Cash — means that we're going to be using Cash ISAs for the first time in a long time, and increasing direct cash savings! Now, we're an edge case, being long-standing investors looking to increase cash buffers, so not the intended targets of these changes aimed at slightly nudging people towards using investments to meet longer term savings goals rather than just cash savings, but still a bit ironic.