New Rachel Reeves ISA warning as rules to ‘make things worse’ | Personal Finance | Finance
An expert has warned that more ISA rules are in the offing that would “make things worse” for British savers. Following Rachel Reeves’s decision to slash the Cash ISA allowance from £20,000 to £12,000, HMRC is believed to be now consulting on additional measures that could restrict how money is held within Stocks and Shares ISAs, which would include proposals to treat certain cash-like investments differently for tax purposes, it is thought.
Transfers from stocks and shares accounts, and Innovative Finance ISAs to Cash ISAs could be banned, and tests used to determine whether an investment is eligible to be held in a Stocks and Shares ISA or is “cash-like”. Moreover, there may be charges on any interest paid on cash held in a Stocks and Shares or Innovative Finance ISA. Justin White, chief operating officer at investment app Kaldi, warned that successive changes risk creating confusion for novice investors.
He argued that, while policymakers are correct to want to encourage greater participation in investing, restricting how cash is used, including reassessing whether money market funds and similar products are too “cash-like” to be held in Stocks and Shares ISAs, could well have the opposite effect, particularly for those using lower-risk, cash-like investments as a stepping stone into markets after exhausting their reduced cash ISA allowance.
“While HMRC’s proposals are designed to encourage greater participation in investing, which is critical to building long-term wealth, there are two very important factors to breaking down the barriers to early investing,” Mr White said.
“People need to be incentivised or given a catalyst to invest, which this proposal addresses, but introducing complexity and reducing flexibility around movements from stocks and shares ISA’s to cash ISAs, removing cash like investments and applying penalties to parking cash in stocks and shares ISA it increases confusion for novice investors rather than empowering them and creates another reason to delay the start of their investing journey.
“This proposal, in order to prevent parking of cash, risks defeating its larger purpose of encouraging investment, particularly early investment which is so vital. If we want to close the investment gap, education, clarity, flexibility and confidence need to sit alongside incentives; not be undermined by them.”
