Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
Q: You manage my mother’s Stocks & Shares ISA which we have recently transferred into a cash fund as she is 91 and needs the funds to pay her care home costs. I understand that there are proposals to tax the returns at 22%. Can you give me more information?
A: Thanks for your question. This relates to the news that, from April 2027, the rules governing ISAs (Individual Savings Accounts) are changing. The primary change the Government is making is to limit the total that can be contributed to Cash ISAs to £12,000 a year for those under 65 years of age. That’s down from £20,000 currently.
That relatively simple sounding change is not, however, the end of the story because it has triggered various other changes that must also be made to make the reforms work.
In particular, the rules for Stocks & Shares ISAs, like your mother’s, are changing to ensure savers won’t simply put their money in a Stock & Shares ISA, leave the money uninvested and then collect cash interest - thereby swerving the limit on Cash ISAs.
As such, any interest generated by uninvested money inside Stocks & Shares ISAs will be taxed at 22% from April next year. Importantly, this 22% tax will apply to all - including those 65 and over - despite the fact that the £12,000 limit on Cash ISAs will not apply to people over 65.
The Government will also outlaw transfers from Stocks & Shares ISAs to Cash ISAs for those under age 65. Over 65s will still be able to make transfers in this way.
That’s not all. There are also rules changes that will potentially affect money invested in ‘cash-like’ investments, such as the cash fund your mother’s ISA money in held in. The Government has said that, from April 2027, ISAs should not be invested 100% in cash funds. If they are, they will lose their ISA tax benefits. But that means, as things stand, it should be possible stay within the rules by keeping just a small proportion - even just £1 - in other investments.
So - in the case of your mother’s ISA, it’s not correct that she would be taxed 22% on the money held in a cash fund inside her ISA. That only applies if her money is uninvested. But if the entirety of her ISA money is held in a cash fund she would risk losing ISA tax benefits - a very bad outcome.
Thankfully, there is a straightforward fix if she moves some money - even a token amount - into something other than a cash fund. Alternatively, she could, as an over 65-year-old, transfer her savings to Cash ISAs.
The rules are still being consulted upon so could change, but these are the changes as proposed currently.
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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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