Basic question re proposed 22% tax on Stocks and Shares ISA's

friolento

https://forums.moneysavingexpert.com/discussion/comment/82062412#Comment_82062412

I have really high hopes on the new Chancellor. Surely nobody can seriously pursue a measure that will annoy countless voters, further confuse people who don't understand the current ISA rules, force ISA providers into spending money on adjustments to their processes and systems, raise next to no additional tax for the Treasury, and completely miss the objective of encouraging people to invest rather than save.Fingers crossed.

friolento

It's been widely reported, and clear from the Treasury statement, that there will be no tax on the interest if there are 'proper' investments in the ISA.

Whether this turns out to be true or not, I still hope that the next Chancellor scraps the changes altogether.

Kim_13

https://forums.moneysavingexpert.com/discussion/comment/82062994#Comment_82062994

They'd need to do something like that to make the changes in any way reasonable. Already £8k will be S&S only, so they don't need to encourage rushed decisions by immediately taxing interest on anything that's kept in cash while the subscriber considers their next investment. More investors will be novices than before as it is.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82063048#Comment_82063048

It's worth remembering that as things stand, all interest on cash will be taxed irrespective of other holdings, so to avoid this, the money would need to be invested in at least a money market fund, either pro-actively by the investor, or swept up by the provider. That's if any interest is payable on cash held in the provider's S&S ISA.

friolento

https://forums.moneysavingexpert.com/discussion/comment/82063076#Comment_82063076

I don't think the plans are that all interest will be taxed.It will depend on how much of your S&S portfolio is cash, or cash-like.

It's fiendishly difficult to understand, or to enforce, what would be taxable under the new rules. Hopefully someone who has a grasp on the practicalities will soon be in charge of the Treasury.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82063091#Comment_82063091

The latest Tax Free Savings Newsletter from HMRC couldn't be clearer on this:

"Any interest or alternative finance return paid or credited on cash held in Stocks and Shares and Innovative Finance ISAs (‘non-cash ISAs’) will be subject to a flat‑rate charge of 22% to discourage long‑term cash holdings."

"100% cash‑like portfolios will be non-qualifying investments. Cash-like assets held as partial allocations will be permitted."

So if you want tax free interest under these proposals, you need a portfolio of investments that are not 100% cash-like, and no interest on cash itself.

The mechanism for taxation appears to be that the platform will send annual returns to HMRC of all interest they have credited on cash, and HMRC will factor it into their existing calculations at the flat 22% rate.

InvesterJones

The mechanism for taxation appears to be that the platform will send
annual returns to HMRC of all interest they have credited on cash, and
HMRC will factor it into their existing calculations at the flat 22%
rate.

Some platforms still pay interest on cash net of basic rate tax in GIAs, for some unfathomable reason. Presumably they'll do the same for ISAs going forwards.

zagfles

https://forums.moneysavingexpert.com/discussion/comment/82062994#Comment_82062994

You are wrong. You have misread it.

zagfles

https://forums.moneysavingexpert.com/discussion/comment/82063091#Comment_82063091

It's quite simple.

Interest on cash will be taxed. Interest on "cash-like" won't. 100% "cash-like" (ie MM funds) is not allowed.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82063228#Comment_82063228

Nice summary but, at the risk of splitting hairs, the first of those three statements isn't quite that simple and, as stated in that newsletter, should be "Interest on cash will be subject to a flat rate 22% charge", i.e. it's not literally (income) tax as such, in that it's not paid at different rates or able to be offset with allowances, etc…