Investment platforms are increasingly hopeful that ministers will soften plans to levy charges on cash held in stocks and shares ISAs.
The sentiment follows detailed talks between industry groups and tax officials.
Discussions between HMRC and financial services firms over draft legislation have suggested room for compromise on both the proposed interest charges and the definition of “cash‑like” assets, according to people close to the negotiations.
One major investment platform said it was “cautiously optimistic” that HMRC was receptive to a more principles‑based regulatory framework rather than strict rule‑based enforcement, which firms had warned could create significant operational and compliance challenges.
Another provider said it was “a lot more confident [HMRC is] coming around than we were this time two weeks ago”, reflecting a shift in sentiment across the sector.
All platforms involved stressed that discussions remain ongoing, with final decisions expected only after further technical consultation and legislative refinement.
The Chancellor’s Budget introduced a £12,000 annual cap on cash ISA contributions for savers under 65, with HMRC later outlining anti‑avoidance measures designed to prevent savers bypassing the restriction.
Earlier proposals included blocking transfers from other ISA products into cash ISAs, introducing tests to determine whether assets were excessively “cash‑like” for inclusion in stocks and shares ISAs, and applying a tax‑style levy on interest earned from cash balances held inside investment ISAs.
Ministers look set to soften plans to levy charges on cash held in stocks and shares ISAs
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GETTYIndustry figures warned the proposed interest charge could reach as high as 20 per cent, effectively reintroducing restrictions similar to those in place before regulatory changes in July 2014.
Under pre‑2014 rules, investments expected to return at least 95 per cent of their value or maturing within five years were categorised as cash‑like and barred from stocks and shares ISAs.
One compromise under discussion would see platforms voluntarily monitoring excessive cash balances and cash‑like assets while encouraging customers to move funds into equities, alongside commitments not to offer artificially high interest rates on cash held within investment ISAs.
Michael Healy, managing director for UK and Ireland at IG Group, said platforms already track ISA cash balances and interest levels, allowing firms to create proportionate rules distinguishing between short‑term transactional cash and longer‑term inactive balances.
Tom Selby, public policy director at AJ Bell, warned that “a heavy‑handed approach to ‘anti‑avoidance’ measures will undermine stocks‑and‑shares ISAs at a time the Government says it wants to build a retail investment culture”.
Proposed interest charge could reach as high as 20 per cent
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He said cash and cash‑like instruments often play legitimate roles in long‑term investment strategies, particularly for diversification and risk management during periods of market volatility.
Money market funds — which typically invest in short‑term government or corporate bonds — are expected to remain under scrutiny due to concerns they could provide indirect exposure to cash‑like assets within tax‑advantaged investment accounts.
Building societies have been among the strongest supporters of tighter restrictions, arguing that money market funds can divert deposits that might otherwise support mortgage lending.
However, a source familiar with discussions said building societies were “not a majority voice” and were “quite outnumbered” by investment platform and asset‑management participants.
Charges would’ve been a tax on investors
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One platform said there was “growing recognition [from HMRC] that banning [money market funds within ISAs] outright could do more harm than good for investors”, suggesting regulators may seek targeted safeguards rather than blanket restrictions.
Alex Campbell, head of external affairs at Freetrade, described cash‑like securities as “a perfect stepping stone into investing” for newer retail investors.
Isobel Gordon, savings policy manager at the Building Societies Association, said such investments can serve de‑risking purposes but added that safeguards are needed to prevent them being used to bypass lower cash ISA limits.
The outcome of the discussions is expected to play a significant role in shaping how the Government balances its objective of encouraging retail investment participation while protecting the long‑term role of cash savings in the wider financial system.
Industry participants expect further technical clarification from HMRC before final legislation is introduced, with firms preparing contingency plans depending on how closely the final rules align with the current draft framework.
The eventual policy direction is likely to influence ISA product design, platform compliance systems and saver behaviour across the investment market in the coming years.