In a significant move affecting millions of savers, HM Revenue & Customs (HMRC) is preparing to block money market funds from being held within Stocks and Shares Individual Savings Accounts (ISAs). The crackdown, branded a "serious setback" by personal finance experts, targets investments deemed too "cash-like".
What is HMRC Planning?
The tax authority will introduce new tests to determine an investment's eligibility for a Stocks and Shares ISA. The central criterion will be whether a fund is considered 'cash like', a classification that will explicitly bar popular money market funds. This policy shift is expected to be a key part of the government's financial agenda.
The Labour Party chancellor had been anticipated to announce changes to ISAs, including potential cuts to the £20,000 annual allowance, during her Mansion House speech on Tuesday, December 4, 2025. While the focus has now shifted to the structure of allowable investments, the broader context of encouraging investment into UK equities remains.
A "Serious Setback" for Investors
Industry figures have reacted with strong criticism to HMRC's proposed restrictions. Mark Burges Watson, Co-Founder of investment platform Kaldi, argues the move directly contradicts the purpose of ISAs.
"Blocking money market funds within Stocks & Shares ISAs would be a serious setback for investors," he said. "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."
He highlighted a critical advantage: these funds allow investors to utilise their full £20,000 ISA allowance while gaining full tax advantages, unlike Cash ISAs which have seen their allowance cut to £12,000. "Millions of savers will be forced into taxable accounts for their excess savings," Burges Watson warned.
Enforcement Challenges and Broader Impact
Enforcing the new rules may prove difficult for HMRC. Money market funds are legally classified as investments, carry explicit 'Capital At Risk' warnings, and are not covered by the Financial Services Compensation Scheme (FSCS).
Matthew Carter, head of savings and mortgages at Coventry Building Society, offered a perspective on parallel changes to Cash ISAs. "Millions of savers will be able to breathe a sigh of relief if the chancellor has decided to change course on cash Isas," he stated, referring to potential cuts to limits.
He criticised a purely restrictive approach as "all stick and no carrot", acknowledging the government's ambition to channel funds into UK equities but cautioning that higher risk isn't suitable for everyone. "Many people, especially those already in retirement or saving for a house deposit, don’t need or want the uncertainty of the stock market," Carter added.
Ultimately, experts contend that money market funds serve as a vital financial tool—a secure place to park money while deciding on longer-term investments or navigating market volatility. Restricting their access within the ISA wrapper, they argue, undermines the system's goal of supporting safe and flexible investment for all UK residents.
