I transferred an ISA and demanded no gaps in interest - I won!

masonic

Consumerist wrote: »

As mentioned earlier, Halifax already pays an extra 0.2% interest on the ISA Direct Reward to their current-account customers but there have been no complaints of breaking ISA rules even though it represents an extra 26 days of interest.

It doesn't represent an extra 26 days of interest. It is coincidentally equivalent to an extra 26 days of interest. Many ISA managers pay bonus rates of interest and some tier the interest rate according to the account balance. None of these things appear to result in tax free interest being accrued on the same subscription in two different places at the same time.

I agree that the "day one" offer does not appear to provide any incentive for faster transfers except that if customers prefer this kind of hassle-free transfer and it leads to a greater take-up then other banks may be persuaded to make similar offers so that ISA transfer times become virtually irrelevant. That's in everyone's interest, in my view.

I have no problem with banks incentivising ISA transfers. I'd love to see some of them on Topcashback or Quidco. The simplest thing they can do is to agree to pay interest from the agreed ISA transfer date, which is the earliest they are permitted to do so. What I don't want to see is a well-meaning incentive backfire because somewhere down the line somebody at HMRC decides that it is a tax fiddle.

Consumerist

masonic wrote: »

Many ISA managers pay bonus rates of interest and some tier the interest rate according to the account balance. None of these things appear to result in tax free interest being accrued on the same subscription in two different places at the same time.

That's really the point I am trying to make. The Halifax "from day one" offer only appears as though interest is being paid on the same ISA in two places at once. Halifax has deliberately promoted the bonus in this way so that potential customers think they are getting interest twice on the same ISA. Their ploy appears to have worked well in some people's minds. In reality it is nothing more than a bonus payment. The amount of the bonus varies according to how long the transfer takes but it is still only a bonus payment..

masonic

Consumerist wrote: »

That's really the point I am trying to make. The Halifax "from day one" offer only appears as though interest is being paid on the same ISA in two places at once. Halifax has deliberately promoted the bonus in this way so that potential customers think they are getting interest twice on the same ISA. Their ploy appears to have worked well in some people's minds. In reality it is nothing more than a bonus payment. The amount of the bonus varies according to how long the transfer takes but it is still only a bonus payment..

As I wrote above, there doesn't seem to be any provisions in the ISA rules for ad hoc bonus payments to get tax relief, so that doesn't work either.

MarkyMarkD

Nice try, Consumerist, but HMRC look at the way things are worded, not at an effective interpretation like the one you are postulating.

They say that they are paying interest on money that you are also getting interest on elsewhere. That is not right.

They could say that they were paying a welcome bonus to each new account in the form of a higher interest rate for the first x months. That would be completely legitimate. And that is effectively what they are saying - except that they are irrationally linking the bonus to the time it takes for the existing provider to transfer the funds, which is an irrelevant thing.

Consumerist

masonic wrote: »

As I wrote above, there doesn't seem to be any provisions in the ISA rules for ad hoc bonus payments to get tax relief, so that doesn't work either.

Bonus payments are just another form of interest payment. Is it necessary to provide separately for them ?

masonic

Consumerist wrote: »

Bonus payments are just another form of interest payment. Is it necessary to provide separately for them ?

A bonus in the terms you describe isn't another form of interest payment. When you remove the apparent reason Halifax say they are crediting this money to the account, then it is just a random sum of money given to the customer by the bank for no particular reason. How can it be justified as an interest payment?

Edit: For the sake of argument, even if it was a standard bonus, I don't think it would be allowed. Imagine if First Direct (who offer a £100 incentive to new customers switching to their current account) made the additional promise to pay that £100 into an ISA for customers who opened both accounts at the same time.

Also, what's to stop a bank saying if customers hold an ISA and also a separate savings account with them, they'll pay the interest from both accounts into the ISA (but it's really a savings account with a rate of 0% and an ISA with an interest rate that depends on your savings account balance). We could all earn tax free interest on all of our savings. I'm sure HMRC won't mind.

masonic

Apologies in advance, but I couldn't resist playing with this idea some more...

Advisor: ...and how much money will you be investing with us in your new ISA today?
Customer: Oh, I have a cheque here for my full £5100 cash ISA allowance.
Advisor: As you know, the interest rate on this ISA is 2.8% tax free, but we can offer a bonus rate of interest if you open a linked savings account with us today.
Customer: Oh, ok.
Advisor: Yes, and the higher the balance in your linked savings account, the higher the rate we can pay you in your ISA. Unfortunately owing to the technical details of this offer, we do not pay interest in the linked savings account.
Customer: Well, I have £50,000 saved at my old bank. What would the rate of interest for my ISA be if I transferred that across to this linked savings account?
Advisor: <taps on computer> It says here that your ISA rate would be 30% if you also saved that amount with us.
Customer: Oh really? You know that's almost exactly the same amount of interest as if all of the money was earning interest at 2.8% tax free.
Advisor: <winks> Really sir? What a coincidence!

Consumerist

masonic wrote: »

A bonus in the terms you describe isn't another form of interest payment. When you remove the apparent reason Halifax say they are crediting this money to the account, then it is just a random sum of money given to the customer by the bank for no particular reason. How can it be justified as an interest payment?

I disagree. Any bonus credited to an account (i.e. over and above the declared interest rate for the account) is just an additional interest payment. When you remove the "apparent reason" for the bonus then, clearly it will then become random because you have removed the reason. I can't imagine why a bank would do that, however. A bonus is usually paid to encourage a customer to do something - normally to open an account.

Edit: For the sake of argument, even if it was a standard bonus, I don't think it would be allowed. Imagine if First Direct (who offer a £100 incentive to new customers switching to their current account) made the additional promise to pay that £100 into an ISA for customers who opened both accounts at the same time.

There would be no bonus paid to the current account so such an offer would be clearly a bogus one. It would effectively be a bonus paid into the ISA for opening the ISA. Halifax aren't doing as your scenario above, anyway.

Also, what's to stop a bank saying if customers hold an ISA and also a separate savings account with them, they'll pay the interest from both accounts into the ISA (but it's really a savings account with a rate of 0% and an ISA with an interest rate that depends on your savings account balance). We could all earn tax free interest on all of our savings. I'm sure HMRC won't mind.

If I understand you correctly, any interest paid from the savings account into the ISA would be a subscription and subject to the current year's ISA limit but it would be allowed on that basis. If the savings account had a 0% interest rate then there would be nothing to subscribe to the ISA with. The interest paid into the ISA account will be the ISA's interest rate.

masonic

Consumerist wrote: »

I disagree. Any bonus credited to an account (i.e. over and above the declared interest rate for the account) is just an additional interest payment. When you remove the "apparent reason" for the bonus then, clearly it will then become random because you have removed the reason. I can't imagine why a bank would do that, however. A bonus is usually paid to encourage a customer to do something - normally to open an account.

So Halifax are duping customers into thinking they are paying interest on ISA money still invested with another provider, but really they are paying a bonus, which is different for each customer and coincidentally corresponds exactly to the interest they would have earned if Halifax was paying interest on their ISA subscriptions while they were still earning interest in a different ISA account at the same time. And HMRC are supposed to accept that as a rational explanation of what Halifax is doing? Really?

There would be no bonus paid to the current account so such an offer would be clearly a bogus one. It would effectively be a bonus paid into the ISA for opening the ISA. Halifax aren't doing as your scenario above, anyway.

But by your logic, it only appears that a bonus is being paid into the ISA for opening the current account. The bonus is deliberately promoted that way so that potential customers think they are getting a tax advantage on an existing bonus, when in reality they are giving up the bonus on their current account and gaining a different one on their ISA.

If I understand you correctly, any interest paid from the savings account into the ISA would be a subscription and subject to the current year's ISA limit but it would be allowed on that basis. If the savings account had a 0% interest rate then there would be nothing to subscribe to the ISA with. The interest paid into the ISA account will be the ISA's interest rate.

No, you misunderstand. The rate on the savings account is 0%, but it appears that it is at the same rate as the ISA and is being paid into the ISA tax free. In reality, the ISA rate has just been cleverly adjusted to make it look like that. See my post #78 to see what I was trying to get at.

Edit: Just for the avoidance of any confusion, the bottom two scenarios are just logical extrapolations of your notion that banks can pay whatever interest/bonus they like into an ISA without having to justify what they are doing to HMRC. I'm just interested to see if you believe what I'm suggesting would be permitted by HMRC. If you think these things would be ok for a bank to do, I may as well just <shake head, move on> as this discussion is just destined to go back and forth ad nauseum.

Consumerist

masonic wrote: »

Apologies in advance, but I couldn't resist playing with this idea some more...

I know I would regard such a discourse will grave suspicion, as, I am sure, would you.