Tax on Money Market Fund held with a GIA

Help & FAQs
1

Hello. I have maxed out my ISA for the year and am looking to park some cash in a Money Market Fund held with a General Investment Account.

Question, how is the income treated from a tax point of view. Would that be treated as interest against your personal savings allowance, similar to a bank savings account, or in another fashion?

Thanks in advance

2

There is a £500 “dividend allowance”; any more than that and you’ll owe Keir Starmer and Rachel Reeves some tax and have to fill out a tax return.

Dividends are taxed at 8.75% above the allowance. There is a separate box on the tax return for this.

If you buy and sell ETFs outside an ISA you may generate a capital gain, again there is a section on the tax return to report any gains above a “capital gains” allowance.

There plenty of advice and examples on the HMRC website!

3

Agreed with patch above. How about a SIPP? If you don’t need the money, putting it in a SIPP can be very tax efficient.

The other thing is, is your MMF paying dividends or accumulative? If accumulative, then when you sell it, the profit gets hit by capital gains instead?

4

Have you thought of GILTS ?
If you get a low coupon one then you pay no CGT on them when they come to pay back the return, i.e. when they mature
Here is the website to find out the current ones in issue:-

5

Here are the lowest ones I could find:-
Here are a couple of low coupon ones :- London Stock Exchange | London Stock Exchange (matures 30/01/2026)
London Stock Exchange | London Stock Exchange (matures 31/01/28)

6

Dusty you are correct. MMFs are taxed as interest income and count against your Personal Savings Allowance. MMFs are not taxed as dividend income.

If you have maxed out your ISA and thus buy further investments in your GIA then you could exploit your dividend allowance through stock funds, and then once that is maxed out (you’ll have to guess what dividends will be paid in the tax year) you could invest in MMFs until your PSA is maxed out.

7

Thanks, something to consider

8

Thanks, this year (I wish it happened every year) I am likely to also max out my SIPP. I am just looking to park some cash on a short term basis should I need it.

9

Thank you, I will look into that.

10

Thanks, that is my understanding. My PSA is also at the limit so my might have to reduce the short term cash or pay the price for holding it.

11

@Dusty

Morning :wave: :grinning:,

If both your ISA and SIPP are maxed out… one other thing to consider is putting money into Premium Bonds with NS&I - maximum to pay in £50K, if you don’t already hold PB in your name.

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You can cash them in at any time and the transfer usually takes 3 working / banking days.

12

Ok in that case, you can consider CSH2 as they don’t pay dividends or interest. The value of the unit goes up over time, so it would be considered for capital gains.