Consequences of exceeding annual ISA limit?

gizz_mo

Hi All

I'm just wondering what the consequences are of paying more than £15k into NISAs in a single tax year. Say you had 2 ISAs you can pay into and across both you exceeded the £15k threshold? Does HMRC reconcile these and then tax you on the excess? Are there any penalties?

Bear with me here - as currently the easy-access NISA accounts are paying rates far higher than the easy access normal accounts - eg 1.75% for a NISA vs 1.4% for easy access - could you open a second NISA at the higher rate and then accept that you will have to pay tax to HMRC on the interest earned at 20%. Since you are earning a higher rate of interest anyway, wouldn't you be better off overall even if you pay tax on the interest earned on the excess - given the higher rate from the NISA?

Does anyone have any experience of this so far?
Thanks

colsten

HMRC will catch up with you as the ISA providers must all report the details at the end of the tax year. It will not take HMRC very long to identify overpayers as your NI number is registered with each ISA.

http://www.hmrc.gov.uk/isa/faqs.htm#15

Depositing into more than one ISA in the same tax year is also against the T&Cs you agree to when you apply for an ISA.

If you are in the business of maximising your interest payments, you should be looking at putting e.g. £15K into high interest paying current accounts, rather than trying to outsmart the taxman, and knowingly breaking T&Cs.

gizz_mo

colsten wrote: »

HMRC will catch up with you as the ISA providers must all report the details at the end of the tax year. It will not take HMRC very long to identify overpayers as your NI number is registered with each ISA.

http://www.hmrc.gov.uk/isa/faqs.htm#15

Depositing into more than one ISA in the same tax year is also against the T&Cs you agree to when you apply for an ISA.

If you are in the business of maximising your interest payments, you should be looking at putting e.g. £15K into high interest paying current accounts, rather than trying to outsmart the taxman, and knowingly breaking T&Cs.

You misunderstand - I am not looking to outsmart the taxman - as I stated that the interest would be declared and tax paid at the correct rate (through self-assessment which I have to do every year anyway). I am just wondering whether there is any possibility of utilising the higher rates offered on the NISAs than are on the pitiful normal savings accounts.

I have already max'd out all the high interest current account options there are for me - but for the pitiful amounts on which the higher interest is available (eg £2.5k nationwide etc) - this is not worth it to me. I also do not think it looks good on one's credit file to have multiple current accounts.

To clarify - I am not intending to defraud the tax man - I just don't see why the banks choose to offer higher rates on ISAs vs other normal savings accounts.

So my question is just that if one goes over the £15k what happens? If the only consequence is that you have to pay tax on the interest - then isn't this a way to play the banks at their own game?

gizz_mo

ok - I found this on HMRCs website - it says that the excess will not be entitled to tax relief and you should not make any attempts to correct it yourself - but wait for HMRC to contact you...

http://www.hmrc.gov.uk/isa/faqs.htm#16

bryanb

I did it by mistake. Opened a 2nd ISA one year and deposited max. HMRC told the provider to return my money inc interest but minus tax at 20%.
No other consequence.
It took 18 months for them to do anything even though I phoned and confessed after about a year.

colsten

You can get over £50K into interest paying current accounts, all of which beat any currently available ISA rate. If you have exhausted this, there is a whole bunch of regular savings accounts that also beat ISA rates.

You are not beating the banks at their own game when putting £30K into an ISA in the same year - for starters, you are breaking the T&Cs you have said you agree to. And you would do so knowingly. Is this the sort of thing you do regularly?

If HMRC allowed more than £15K to be put into an ISA in the same FY, they would say so. There is no loophole or anything that you can exploit. They'll pull you up over it, and whilst they might politely correct you the first time they catch you, it seems rather silly to even try.

Last post from me to this ridiculous little scheme.

gizz_mo

colsten wrote: »

You can get over £50K into interest paying current accounts, all of which beat any currently available ISA rate. If you have exhausted this, there is a whole bunch of regular savings accounts that also beat ISA rates.

You are not beating the banks at their own game when putting £30K into an ISA in the same year - for starters, you are breaking the T&Cs you have said you agree to. And you would do so knowingly. Is this the sort of thing you do regularly?

If HMRC allowed more than £15K to be put into an ISA in the same FY, they would say so. There is no loophole or anything that you can exploit. They'll pull you up over it, and whilst they might politely correct you the first time they catch you, it seems rather silly to even try.

Last post from me to this ridiculous little scheme.

Thanks but as I said I have exhausted my options with current accounts, and for a single person such as me 50k in current accounts is not possible as I already have a 123 current account with more than 20k in it, and if I open a second one it has to be a joint account and I can't open a joint account without a partner. Plus I would rather spend my time at work earning money to add to my savings than faffing about moving 2.5k between current accounts for a net amount of interest of £6 each month. I'm really just looking for a decent rate on a large sum of money until I use it all to buy a house when the time is right.

Your opinion is noted, thanks for taking the time but no need to assume everyone is trying schemes to defraud. Hence asking the question first to gather opinion.

I have found other posts on here since posting which state that the tax on the interest is the only consequence and a polite slap on wrists to not do it again. Some people have done it more than once. Ridiculous it may be in your opinion, and you are indeed entitled to that. But sheeeeesh. It was a simple factual question that merely required an answer if you knew it. You clearly did not but I thank you anyway for your moral judgement.

gizz_mo

YorkshireBoy wrote: »

As a single person you can get £52.5K in current accounts making 3-5% AER...and set all the required funding up with SOs, so leaving you plenty of time to concentrate on work.

£20K - Santander 1-2-3 (fund via salary)
£15K - 3 x BoS Vantage (all internally cross funded by SO)
£7.5K - Lloyds Club & Nationwide FlexDirect (cross funded by SO)
£4K - 2 x TSB Plus (both internally cross funded by SO)
£6K - 2 x Tesco (both internally cross funded by SO)

Otherwise, the best you're going to get is around 1.4% AER gross in an instant access savings account.

The hard work (if you can call it that) is setting it up initially. As you can see from the above SO layout, it runs itself from month 2 onwards.

Thanks but I really do not want so many current accounts to keep track of when I already have spread my savings across multiple different savings accounts to avoid going over the FSCS limits.

I have already been keeping an eye on the other posts about current account interest and I have no desire to have that many current accounts. Every current account application leaves a mark on your credit file. I check my file once a year and clean it up, and I was able to see my credit rating increase just by closing a single current account. I have no other debt although I do spend on credit cards to get cash back and Tesco points but pay off in full every month so I have built up a good credit rating.

Archi_Bald

You realise that the credit rating you see on your credit history is quite meaningless as no lender will look at it? In my experience, multiple current accounts have no impact on your ability to obtain credit. What you need to be concerned about is that you do not have any markers (payments missed, unauthorised overdrafts used etc), and that the total agreed credit available to you across all your accounts isn't excessive.

gizz_mo

Archi_Bald wrote: »

You realise that the credit rating you see on your credit history is quite meaningless as no lender will look at it? In my experience, multiple current accounts have no impact on your ability to obtain credit. What you need to be concerned about is that you do not have any markers (payments missed, unauthorised overdrafts used etc), and that the total agreed credit available to you across all your accounts isn't excessive.

Yes Thanks. Guys I'm an avid user of this forum. I am well aware of the ways to use current accounts to maximise interest but as I have stated I am not interested in that method for my own personal reasons.

I'm grateful that everyone is choosing to give me financial advice however that is not what I have asked for......I would be even more grateful if people just answer the question I have asked if they can. If I required advice on savings I would have asked for it.

Thank you.

jimjames

If you accidentally put in £5000 to a cash ISA and £11000 into a s&s ISA then it's likely no action would be taken.

If you deliberately put £15000 into a cash ISA and then falsely open another cash ISA with £15000 declaring that you have not paid into another ISA this year and repeat in subsequent years then I think the outcome will be different.

If you're really determined to get better returns than cash savings then why not look into s&s ISAs? Unless you're buying a house or have need for cash short term then having so much cash probably isn't best option.