Financial Notes

Hey 👋

You may (or may not) have heard the the UK Government are planning to place a 22% tax on the Stocks and Shares ISA’s.

This is the headline that is creating unnecessary noise in the media but here is exactly what you need to know.

Ok the reason for the implementation of this is to essentially disincentivise savers who have had their Cash ISA allowance capped from 2027 onwards, from just putting any extra money into a Stocks ISA and still earning a rate of interest.

It’s to essentially close a loophole that still exists.

It is worth being aware that many providers do offer attractive interest rates on cash held in a Stocks ISA. Although some brokers do invest some (or sometimes all) of this cash into something called a Qualifying Money Market Fund, so it may not be protected by the FSCS.

The way some articles have positioned this suggests it’s a blanket 22% tax on the Stocks ISA itself. This is not the case. Instead, it’s a 22% tax rate on any interest earned in the Stocks ISA.

For those who want to save cash inside of the Stocks ISA but avoid paying the 22% tax on interest, there is a loophole still. I’ve referenced it already, and thats to hold the cash in cash-like investments. These include money market funds, or overnight ETF’s. These track the official near risk free interest rate of the Bank of England.

Obviously this is not an investment recommendation, but it is an alternative option available.

In principle it sounds simple, tax the interest earned at 22%, but how?

I can only assume (like with Banks), that Brokers will need to provide account transparency to HMRC, to show which accounts have earned interest on their cash.

But the question I also have is, (and do reply to this email if you know the answer), is whether the interest earned will qualify under your personal allowances which allows you to earn tax free interest in any account, the amounts are as follows:

Overall here is my two cents on this.

I understand why they’d want to close the cash savings in Stocks ISA’s loophole, but my question would be, is it worth it?

The UK government are trying to incentivise investing (apparently), and in my view the first step to encourage that is to have people open a Stocks and Shares ISA.

In my view, I don’t care whether they’ve opened it to put cash in, because it may just encourage them to start looking around, and wet their appetites to learn a bit more about investing and how to get started.

To cut that curiosity off to me I think is a mistake.

But it just very much feels like this government want to tax just about everything we can lay our hands on, so it looks like another tax it may just be for us to pay which absolutely goes against the grain of a “TAX FREE” individual savings account (ISA), just so they can collect a few extra shekels in tax money.

VIDEO OF THE WEEK 🎬

If you’re new to investing and want to get started, I recently made a video where I started a new Stocks ISA from scratch this just £150, click below to watch,