MSE News: Budget 2015: ISAs to become fully flexible with withdrawals allowed

jamesd

masonic wrote: »

Money flexibly withdrawn is disregarded in an ISA transfer (see example in clause 6.83), so when cash ISA A is transferred to cash ISA B, it is reported as containing ‘net’ current year subscriptions of £100. Manager A cannot receive any current year replacement subscriptions once the current year subscriptions have been transferred. Manager B can receive subscriptions up to the annual allowance less the £100 net subscriptions received.

6.83 does not contain any text saying that manager A cannot accept a replacement subscription after the transfer.

6.82 does provide explicit relevant text:

"Replacement subscriptions do not count as subscriptions for the purpose of determining whether the investor has subscribed to more than one ISA of the same type"

As does 6.77:

"Where a withdrawal is made, any subsequent subscriptions in the same tax year that would otherwise count towards the subscription limit will do so only to the to the extent that previously withdrawn amounts have been fully replaced"

It's also notable that current year subscriptions are not present in the extensive list in 6.80 of things that cannot be replaced.

It's simple enough: the limit for the current year that the new manager gets is reduced by the amount subscribed and the replacement subscriptions to the old manager aren't counted as current year subscriptions any more. All of which is explicitly said in the rules I have quoted.

masonic

jamesd wrote: »

6.83 does not contain any text saying that manager A cannot accept a replacement subscription after the transfer.

Yes it does. Here is the text (my highlighting):

6.83 Where a flexible ISA is transferred the old manager must provide the new manager with the ‘net’ subscriptions in the current year. That is, the total subscriptions in the year (disregarding any additional permitted (paragraph 6A.1) and defaulted subscriptions (see paragraph 6.51)) less any amounts withdrawn. Subject to any subscriptions made to other ISAs in the year, the full balance of the annual subscription limit will be available with the new manager.

So, if the net subscriptions in the current year are transferred to ISA manager B, and "Subject to any subscriptions made to other ISAs in the year, the full balance of the annual subscription limit will be available with the new manager", there are no replacement subscriptions from the current tax year available to be paid back to ISA manager A, because they are now made available to ISA manager B as part of the annual subscription limit.

Using your example or paying in £1000 and withdrawing £900, £100 net subscriptions were transferred and £15,140 is available to be paid back to ISA manager B. Paying any of the £900 to ISA manager A would constitute an invalid subscription.

And here is the worked example from HMRC (again my highlighting):

For example, Mr Jones subscribes £10,000 to his flexible ISA with manager A on 6 April 2016. On 1 May 2016, he withdraws £3,000, and on 1 June 2016 ‘replaces’ £1000. On 1 July he transfers his flexible ISA to a manager B. Manager A reports to manager B
- ‘net’ current year subscriptions of £8,000
- the date of the first subscriptions counting towards the subscription limit of 6
April 2016 Manager B can accept subscriptions up to £7,240 (the annual subscription limit minus ‘net’ subscriptions of £8,000 up to the date of transfer).

If, as this example suggests, Manager B holds £8,000 of current year subscriptions and is entitled to receive £7,240 more, then clearly there is no entitlement for Mr Jones to make any replacement subscriptions: £8,000 + £7,240 = £15,240.

The overriding regulation governing transfers of ISAs is clause 11.12, which applies to all ISAs:

11.12 An investor can transfer all of the current year’s ISA subscriptions, the investments bought with those subscriptions, and any income arising on those investments (current year account), and/or
11.12a some or all of the previous years’ ISA subscriptions, the investments bought with those subscriptions, and any income arising on those investments (prior years account).

No subscriptions from the current tax year can be left behind in a transfer including current year subscriptions. That includes subscriptions flexibly withdrawn, which are added back on to the allowance available to the new ISA manager for the tax year in question as per the worked example from HMRC above.

jamesd wrote: »

6.82 does provide explicit relevant text:

"Replacement subscriptions do not count as subscriptions for the purpose of determining whether the investor has subscribed to more than one ISA of the same type"

As does 6.77:

"Where a withdrawal is made, any subsequent subscriptions in the same tax year that would otherwise count towards the subscription limit will do so only to the to the extent that previously withdrawn amounts have been fully replaced"

It's also notable that current year subscriptions are not present in the extensive list in 6.80 of things that cannot be replaced.

It's simple enough: the limit for the current year that the new manager gets is reduced by the amount subscribed and the replacement subscriptions to the old manager aren't counted as current year subscriptions any more. All of which is explicitly said in the rules I have quoted.

This is an incorrect interpretation of the regulations because no such replacement can take place - it would be in breach of 11.12. Replacement subscriptions may not count as subscriptions for the purpose of determining whether the investor has subscribed to more than one ISA of the same type, but replacement subscriptions cannot be made without subscriptions having also been made to the same ISA account and those original subscriptions, withdrawn and now replaced, were not transferred in accordance with 11.12.

Furthermore, those original subscriptions, if made in the current tax year, count as subscriptions for the purpose of determining whether the investor has subscribed to more than one ISA of the same type. The net result would be two different ISA managers would report new cash ISA subscriptions in the same tax year in their annual returns, which is an invalid combination of ISAs.

jamesd

Masonic, I think that at this point I agree with you and thanks for persevering. The underlying issue was HMRC's incomplete definition of what the net subscription value is.

masonic wrote: »

And here is the worked example from HMRC (again my highlighting)

So looking at that example which is in 6.86 of the draft changes to the Guidance Notes from ISA Manager Bulletin 69:

"For example, Mr Jones subscribes £10,000 to his flexible ISA with manager A on 6 April 2016. On 1 May 2016, he withdraws £3,000, and on 1 June 2016 ‘replaces’ £1000. On 1 July he transfers his flexible ISA to a manager B. Manager A reports to manager B
o ‘net’ current year subscriptions of £8,000
o the date of the first subscriptions counting towards the subscription limit of 6 April 2016

Manager B can accept subscriptions up to £7,240 (the annual subscription limit minus ‘net’ subscriptions of £8,000 up to the date of transfer)."

So:

6 April 2016: annual allowance of £15,240. £10,000 subscribed leaving £5,240 to subscribe. Net subscription is £10,000.
1 April 2016: £3,000 withdrawn, now £3,000 of replacement subscriptions and £5,240 of new subscriptions available, net subscription £7,000 ("the total subscriptions in the year ... less any amounts withdrawn" from the start of 6.86).
1 June 2016: £1,000 replaced, now £2,000 of replacement subscriptions

but what are now the values of the new subscriptions and net subscriptions available?

6.86 definition says net subscription is still £7,000 because that's the £10,000 minus the £3,000 withdrawn.

But the HMRC example says that net subscription is £8,000. So the rule in 6.86 can't be complete but instead must be rewritten as this, my text, not HMRC text:

"the total subscriptions in the year ... less any amounts withdrawn plus any amounts replaced"

So that's how HMRC gets to the net subscription value - by not using its own definition of what net subscription means.

And what is the new subscription amount available at B?

HMRC says that it's "£7,240 (the annual subscription limit minus 'net' subscriptions of £8,000"

If the £5,240 for new subscriptions on 1 April 2016 had been increased by the £1,000 returned it would be £6,240.

My mistake was believing HMRC's definition and not working through the example step by step to see that they didn't really use that definition.

masonic wrote: »

then clearly there is no entitlement for Mr Jones to make any replacement subscriptions: £8,000 + £7,240 = £15,240.

I now agree with this.

I'll let this stew a while then I think go back and strike out much of my earlier post.

It also appears that I've accumulated another change/clarification request, that HMRC correct their definition of what net subscription is at the start of 6.86.

colsten

It's good to see it's all that simple. Even before we add Iffy ISAs, HTB ISAs and LISAs into the equation, and not to mention AE and/or personal pensions etc.. I'd love to be in my twenties again (not) with all these opportunities.

masonic

jamesd wrote: »

But the HMRC example says that net subscription is £8,000. So the rule in 6.86 can't be complete but instead must be rewritten as this, my text, not HMRC text:

"the total subscriptions in the year ... less any amounts withdrawn plus any amounts replaced"

So that's how HMRC gets to the net subscription value - by not using its own definition of what net subscription means.

HMRC appears to be treating subscriptions that have been flexibly withdrawn and replaced as if they were never withdrawn, but I don't think it states this anywhere.

And what is the new subscription amount available at B?

HMRC says that it's "£7,240 (the annual subscription limit minus 'net' subscriptions of £8,000"

If the £5,240 for new subscriptions on 1 April 2016 had been increased by the £1,000 returned it would be £6,240.

I'm not sure I follow this bit. The £5,240 for new subscriptions on 1 April 2016 would be increased by £2,000 (£3,000 flexibly withdrawn - £1,000 replaced). In other words, had the replacement not been made it would be increased by £3,000 to £8,240, but taking into account the replacement, that £8,240 would be decreased by £1,000 to £7,240. Replacement subscriptions would only have the capacity to decrease the available allowance after transfer, never increase it.

Shedman

If Masonic and JamesD (two of the most knowledgable and savvy posters on these forums IMHO) can't agree on how these new Flexible ISAs work what chance does the 'man in the street' have (and god forbid the advice that the providers CS Reps are likely to give) :wall:

jamesd

masonic wrote: »

HMRC appears to be treating subscriptions that have been flexibly withdrawn and replaced as if they were never withdrawn, but I don't think it states this anywhere.

If it does I didn't find it and I've read just about everything on the subject. Part of why I got it wrong and wanted things to stew for a while...

masonic wrote: »

I'm not sure I follow this bit.

To close to bedtime for me to ponder that now, maybe later.

badger09

colsten wrote: »

It's good to see it's all that simple. Even before we add Iffy ISAs, HTB ISAs and LISAs into the equation, and not to mention AE and/or personal pensions etc.. I'd love to be in my twenties again (not) with all these opportunities.

badger09 wrote: »

I used to consider myself competent to answer almost any ISA question correctly:cool:.

Having moved fairly rapidly from Unconscious Competence to Conscious Incompetence, I've pretty much given up:(

Hopefully some others will follow suit:p

I rest my case:p


Iffy ISAs :rotfl::rotfl::rotfl::rotfl:

ThriftyFelicity

gwapenut wrote: »

OK, to get the ball rolling....

Coventry - Yes (source: web page)
Nationwide - Yes, from April (source: email)
National Counties - Plan to offer it later in the tax year but not now (email)
Lloyds - I've seen here that they do plan to offer it (ASAP?) (source:forum)
Virgin - Easy Access 1.1% only (source:forum)

Santander - No. (forum)
Cambridge - No. (email)

TSB - Yes (source: page 3 of this document)

10_66

West Brom - No, source: phone call
first direct - No, source: secure message
Kent - No, source: email
RBS/Nat West - No, source: newspaper article


Halifax - Yes on easy access, source: (can't remember)


Some of those offering flexible status are only offering on certain ISAs (ie, not fixed rate), whilst others are offering it on both easy and fixed.