HMRC’s move to bar money market funds from stocks and shares ISAs—alongside cutting the Cash ISA limit—has drawn sharp criticism from investment experts, who warn the changes will restrict safe, flexible options for savers and undermine the core purpose of ISAs.
‘serious setback’ for investors – and it probably won’t work
An investment expert has branded HMRC’s plans to block money market funds from being held in stocks and shares ISAs as a ‘serious setback for investors’. In last week’s budget, the chancellor Rachel Reeves confirmed that the Cash ISA limit will be cut from £20,000 to £12,000, causing financial experts to urge those who had previously used their entire ISA allowance in a Cash ISA to consider lower risk, cash-like investments, such as money market funds as a stepping stone into investment.
However, under the new rules HMRC has said it will also undertake tests to determine whether an investment is eligible to be held in a stocks and shares ISA or is ‘cash like’, indicating that money market funds will be blocked. In response, Mark Burges Watson, Co-Founder of Kaldi says restricting access “undermines the very purpose of ISAs – supporting safe, flexible investment.”
He said: “Blocking money market funds within Stocks & Shares ISAs would be a serious setback for investors. These funds are among the safest short-term investment options—low-risk, cash-like, and currently yielding over 4%, far higher than instant-access Cash ISAs at high street banks. They also offer full tax advantages and allow investors to use their entire £20,000 ISA allowance, unlike restricted Cash ISAs.
“With the Cash ISA allowance cut to £12,000, millions of savers will be forced into taxable accounts for their excess savings. 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.
“HMRC could have a tough time enforcing these restrictions, as MM funds are classified as investments, carry a ‘Capital At Risk’ warning and are not covered by the FSCS. They are also clearly loan stock.”
