The UK government confirmed a new 22% tax charge on interest earned from uninvested cash held inside Stocks and Shares and Innovative Finance ISAs. This rule takes effect on April 6, 2027.
Anyone else thinks this is the start of the end?
First its a 22% tax on interest, then its tax on capital gains, all while slowly reducing how much you can deposit each year.
Well, it’s Labour. They will tax all, continue to borrow and continue to spend. This is a parting gift from a Chancellor who ultimately is not qualified to be a small town shop book keeper. I would honestly think that under Burnham and (possibly) Miliband as Chancellor, things will only get worse. The question now is, where to put savings if indeed it’s even worth saving. I’m at an age (56) where Pension and Investment (and TAX) is key and have to admit that parting ways with the UK is an ever increasing possibility.
Park the not invested funds on a similar accumulative ETF like Xtrackers II EUR Overnight Rate Swap UCITS but for £ seems to be a possible to solution to delay taxes until there’s realized capital gains.
It seems very similar as receiving interest from not invested cash in Trading212, better with some control when we have to pay taxes.
Move uninvested cash into your Cash ISA and transfer it back to your Stocks & Shares ISA only when you’re ready to invest.
The problem is that this isn’t a practical solution for those who have already used their Cash ISA allowance (£20,000 today, £12,000 in future).
Personally, I’m already paying exorbitant taxes and have little appetite for additional taxation on cash held temporarily while awaiting investment opportunities. In fact, I’ve largely stopped buying UK shares because stamp duty significantly increases the cost of investing, often making overseas investments more attractive even after FX fees.
As a result, policies aimed at encouraging investment in UK equities can have the opposite effect. Reducing the Cash ISA allowance while imposing a 22% tax charge on uninvested cash would further discourage me from investing in UK-listed shares.
Its the interest generated from uninvested cash. Not the cash itself.
It’s in the thread title and mentioned several times in the posts above, but somehow it still escaped me 
.
Thanks for the clarification, @Scrooge_McCodf !
Unfortunately, transfers from Stocks & Shares ISA’s to Cash ISA’s will be barred from next year under the new rules (for under 65’s).
You should be able to use money market funds (or equivalent, like CSH2) as long as it’s part of an investment portfolio (not the whole portfolio), and also things like short dated Gilts and UK Treasury Bills. It seems much needs to be clarified though.
Here’s the latest HMRC fact sheet on it - ISA reform 2027: anti-circumvention rules factsheet - GOV.UK
As I understand it, the 22% charge only applies to cash sitting uninvested within a Stocks & Shares ISA and earning interest. It doesn’t apply to investments themselves, accumulated dividends, or capital gains.
The purpose seems to be preventing people from effectively using a Stocks & Shares ISA as an extension of their Cash ISA allowance. From 2027, the Cash ISA limit is set to be £12,000, so this measure is designed to stop people holding an additional £8,000 of cash in a Stocks & Shares ISA and receiving tax-free interest on it.
In reality, anyone able to save £20,000 a year is unlikely to be leaving large sums of cash sitting uninvested in a Stocks & Shares ISA anyway, at least in my opinion.
While I am not in favour of the changes, what Labour are doing is changing the ISA rules back to what they used to be before George Osborne reformed ISAs in 2014.
Does anybody know how the tax will be collected, will T212 take it automatically from our daily interest? Or will we be expected to do a tax return?
Assuming it works the way it used too (highly likely!), brokers will directly deduct anything due. This amount will not be reclaimable if you are a non taxpayer or under your PSA.
It will also be called a “charge” so ISAs maintain their “tax free” status and not mentioned on tax returns.
Ah good thanks for reply, personally I would much prefer they do it that way!
Will it start to be counted immediately or cash invested say for a week or something?
Odds are it will be deducted directly from interest payments on cash balances (very important to understand they will not be taxing cash balances themselves under any current proposals!). In other words say you have £10,000 uninvested cash in your S&S ISA and you earned a gross daily interest payment of £1 from T212, you’d actually receive 78p after the tax charge was taken off, and T212 would pay the 22p to HMRC. There’d be no further tax payable for higher rate payers, nor any opportunity to claim it back for non-tax payers.
As @gt94sss2 mentions this is assuming it works the way it used to prior to the 2014 rule changes - which seems likely, but I’m not sure if it’s been confirmed yet.
What about your Personal Savings Allowance? Basic rate taxpayers can earn £1,000 in interest tax free, for higher rate taxpayers its £500 per year. If T212 deducts the 22% tax before payment and I remain under the PSA then what?
Unfortunately, on the information that we currently have, 22% will be deducted even if you use zero amount of your PSA. The same applies to those who can use the Starting Rate for Savings Allowance (which is £5,000 and is in addition to the PSA). Similarly those with total income under £12,570 will also pay the 22% ‘charge’ (i.e. tax).
Will the daily interest payments in the T212 S&S ISA normally be impacted by this new charge?
Isn’t the “cash” in the product actually Money Market Funds?
Martin Lewis says the charge won’t apply to returns made on Money Market Funds unless all your S&S assets are held in MMFs.
So as long as I still hold some shares alongside my “cash” in the 212 S&S ISA, then if I get £1 a day interest, they won’t deduct the new 22% charge and only pay me 78p?
I love the daily cash interest payments feature, and so hold most of my cash in the T212 S&S ISA. It means that I can buy some fractional shares every day with the interest payment. I like being able to do that.
I would hate to have to move my cash out to avoid the charge, and only get paid interest monthly, which seems to be the default everywhere else (even the T212 Cash ISA).
No, prior to 2014 it was 20% on uninvested cash. Don’t forget that ISAs were created by Labour by Gordon Brown.
But the rules which will apply from April 2027 aren’t based on or linked to the rules in 2014 are they?
From what I’ve seen the new rules are:
What’s Gordon Browns input on the new proposals?
*Some* of it may be held in QMMF’s, some in bank deposits. You can get a breakdown of how your cash is spread in the app by clicking on the cash balance in the main screen, and then clicking the “interest” button. It’s also broken down in less detail in the activity statements. I don’t know how or why they split it like they do but for myself, roughly 87% is held in various bank deposits and just 13% in QMMF’s now. This has changed over time - months ago I had a lot higher percentage in QMMF’s. This is not something you have any control over, and I’m not sure if it’s on a per account basis depending on how you use your cash, or if everyone gets the same allocation.
Not officially, but many commenters have noted that much of what they are doing now is regressing to the pre-2014 rules. Prior to 2014, interest on cash was subject to a 20% non-refundable tax “charge”. There were also different limits for cash and stocks & shares ISA’s. Additionally there were bans on things like short dated bonds and MMF’s being held in S&S ISA’s, which thankfully is not the case in the 2027 rules.
Directly to your point, I’m not 100% sure what the tax treatment will be for account cash invested by T212 in QMMF’s - but if it is given favourable tax treatment over cash held as bank deposits, part of this advantage would be lost if only a small percentage of your cash is held in QMMF’s.
