Listen to The Money Vault - What are Money Market Funds?
In this episode of The Money Vault, we discuss the confirmed changes to Stocks and Shares ISAs scheduled for April 2027. With the cash ISA allowance dropping to £12,000 for those under 65, the government is introducing a 22% tax charge on interest earned from uninvested cash held within Stocks and Shares ISAs. We explain how money market funds work and how they could provide a legitimate workaround, allowing you to earn a 'cash-like' return on your money without triggering the tax charge.
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Summary:
I explain the upcoming changes to ISA allowances scheduled for April 2027, detailing the new 22% tax on uninvested cash within Stocks and Shares ISAs. I reveal a potential solution using money market funds and revisit a classic episode to explain exactly how these investments work. Finally, I detail the specific risks involved with money market funds and outline the latest Financial Services Compensation Scheme (FSCS) limits to ensure you understand exactly how your money is protected.
Key insights
- ISA changes are coming - From April 2027, the cash ISA allowance drops to £12,000 for under-65s, while Stocks and Shares ISAs retain the £20,000 limit.
- A new tax on cash - To prevent savers from keeping large cash balances in their investment accounts, interest earned on uninvested cash within a Stocks and Shares ISA will face a 22% tax charge.
- The money market fund loophole - Investing your remaining allocation into a money market fund within a Stocks and Shares ISA could avoid this tax, as long as you hold a 'qualifying investment'.
- They are not cash - Money market funds carry investment risks, including credit, interest rate, and liquidity risks, meaning the value of your investment can fall.
- Protection limits differ - Money market funds are protected by the FSCS up to £85,000 per firm, whereas standard UK savings accounts now benefit from up to £120,000 of protection per banking institution.
Resources
Links referred to in the podcast:
- Sign up to our weekly newsletter
- Take out a trial of 80 20 investor
- MTTM - Episode 184 - Getting the most from your phone's Stock App
- Latest cash interest rates on investment platforms
- MTTM Podcast Episode 423 - Investing in Gilts
- Stocks and Shares ISAs to be hit with new 22% tax
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