ISA warning issued after Rachel Reeves announcement as HMRC could โblockโ funds | Personal Finance | Finance
Savers have been warned that HMRC could “block” investors from using money market products to manage their risk. Money market funds and other “cash-like” investments could be affected by the plan, according to reports. They canย currently be held in aย stocks and shares ISAย and are utilised because they are lower risk. Investment firm AJ Bell explains that they “aim to create a slightly better return than youโd get on cash in the bank” and act as an alternative to cash.
In addition to stocks and shares ISAs, they can be held in a “wrapper” self-invested personal pension (SIPP) or a dealing account. Mark Burges Watson, co-founder of finance app Kaldi, said: “Blocking money market funds within stocks and shares ISAs would be a serious setback for investors. These funds are among the safest short-term investment optionsโlow-risk, cash-like, and currently yielding over 4%, which is far higher than instant-access cash ISAs at high-street banks.
“They also offer full tax advantages and allow investors to use their entire ยฃ20,000 ISA allowance, unlike restricted cash ISAs.
“With the cash ISA allowance cut to ยฃ12,000, millions of savers will be forced into taxable accounts for their excess savings.”
He added: “Money market funds serve as an ideal stepping stone, letting savers park money securely while deciding how to invest or managing short-term market volatility.
“Restricting access undermines the very purpose of ISAs: supporting safe, flexible investment.
โHMRC could have a tough time enforcing these restrictions, as MM funds are classified as investments, carry a โCapital At Riskโ warning and are not covered by the FSCS. They are also clearly loan stock.”
HMRC told MoneyWeek that rules will be introduced to “avoid circumvention” of the new ยฃ12,000 tax-free limit for cash ISAs.
A spokesperson added: “Whether an investment will qualify for inclusion within an ISA will depend on whether it complies with the rules.”
Details of the changes will be publicised in advance following discussions with stakeholders, the Government said.
