Reeves’ new 22 per cent tax – and the ‘loophole’ to get around it | Personal Finance | Finance

A financial expert has revealed a loophole that could potentially prevent the new 22 per cent tax being introduced by the Government. This revolves around the new £12,000 limit on Cash ISAs and the new 22 per cent tax announced on interest on cash held in Stocks and Shares ISAs.

Chancellor of the Exchequer Rachel Reeves confirmed in last year’s budget that the Cash ISA limit will be reduced to £12,000 a year for people under 65 in a bid to get more Brits investing. However, there were immediate fears that people would use the Stocks and Shares ISA’s £20,000 limit without actually investing the money.

After weeks of rumors, HMRC confirmed earlier this week that a 22 per cent ‘charge’ will be charged on interest paid on cash held in non-Cash ISAs, including the Stocks and Shares ISA. the description also includes the line‘Non-Cash ISA portfolios consisting of 100% cash equivalents would be unsuitable investments’.

Andrea IonGiving help and tips on social media and his podcast thanks to his experience in the financial sector, he explained why this single line is important and what solution it offers.

He said: “HMRC are set to levy 22% tax on interest earned on cash in a stocks and shares ISA. I know it seems confusing, here’s how it happened and how you can avoid it in 60 seconds.”

“Rachel Reeves reduced the Cash ISA allowance from £20,000 to £12,000 for under-65s. She said the aim was to get more Brits to invest instead. But people soon noticed a loophole. They could put the extra money into a Stocks and Shares ISA and leave it as cash, as most investment providers still pay interest on uninvested cash.”

“So the government is trying to close that loophole by taxing interest at 22 percent. But there’s another loophole. There are super low-risk investments called money market funds that provide returns similar to cash. So instead of keeping your money in cash, you can put it into one of those.”

“Now HMRC have also said that 100% of your money cannot be invested in money market funds. This means people can put most of their money into a money market fund and a small amount into something like a global ETF or shares. And this is within the rules as it stands.

“I don’t think you should do that because investing is still a great way to create wealth in the long term. But I don’t like what HMRC are doing either. So yeah, take it as you wish.”

The announcement on Tuesday, June 23, also included the promise of a new first-time buyer account with no upper age limit to replace the Lifetime ISA.