Cash ISAs & Reduced FSCS Max

Observer_22

I have searched the Forum for any advice on this but to no avail. If I have missed a relevant thread I would be grateful if anyone could point me in the right direction.

The issue is that we currently have a little under the present £85,000 FSCS limit in cash ISAs. Before the rate falls to £75,000 early in 2016 our provider will allow us to reduce our holdings, without penalty, to a little below the new £75,000 limit before the end of 2015. However, given the HMRC rules on investing in ISAs will we be allowed to re-invest the refunded £10,000 in another ISA given that we have already invested up to the annual limit in this current financial year? I cannot seem to get a definitive answer as to whether this will be allowed under HMRC rules.

Thanks for your help.

colsten

When you say "we currently have a little under the present £85,000 FSCS limit in cash ISAs", do you mean two of you together have a total of some £85K in ISAs, or is it each of you? Or do you mean something different?

You don't need to do anything if the value of each person's ISA is below £75K.

If a person has more than £75K in their ISA: Find a new ISA provider that allows transfers in and open an ISA with them. Instruct them to transfer up to £10K from your existing to the new ISA.

Your old provider is obliged to co-operate and must not do anything to disadvantage you as a result of the lower FSCS limit. Should they not co-operate, complain in writing to them.

Observer_22

Thank you for your response Colsten. The 'we' refers to us each holding single, individual cash ISAs above the impending FSCS max. As far as I'm aware cash ISAs can only be held individually under a single NI number - but I'm not an expert.

I understand that my existing provider must act appropriately but there is uncertainty - not least from HMRC in my limited experience - whether HMRC will allow additional cash ISA deposits in the same FY once an individual has already invested to the current annual maximum. If so, bang goes £10K x 2 of the tax free allowance?

eskbanker

Observer_22 wrote: »

I understand that my existing provider must act appropriately but there is uncertainty - not least from HMRC in my limited experience - whether HMRC will allow additional cash ISA deposits in the same FY once an individual has already invested to the current annual maximum. If so, bang goes £10K x 2 of the tax free allowance?

No, read colsten's post more carefully - if you use the ISA transfer process then you can keep these £10Ks within the tax-free ISA shelter, as this prevents them from being regarded as "additional cash ISA deposits"....

Observer_22

...... but strange that neither my ISA provider nor 2 other prospective providers will confirm that this is actually the case.

It defeats me why people think the anonymity of a user name suspends politeness and gives licence to be snippy on forums. Would you start such a reply face to face?

Thank you for your reply.

le_loup

Observer_22 wrote: »

It defeats me why people think the anonymity of a user name suspends politeness and gives licence to be snippy on forums. Would you start such a reply face to face?

WHAT!
Read both replies more carefully and concentrate on what they say - not on what you thought they said.
You asked for help and you got it - in spades.

masonic

Observer_22 wrote: »

...... but strange that neither my ISA provider nor 2 other prospective providers will confirm that this is actually the case.

It defeats me why people think the anonymity of a user name suspends politeness and gives licence to be snippy on forums. Would you start such a reply face to face?

Thank you for your reply.

I find it slightly hard to believe that all three ISA providers were unable to convey to you the ISA transfer rules. However, it might bear pointing out (in the nicest possible way, of course) that some people are unable to get the information that they require not due to a shortcoming of the advice they receive, but due to a shortcoming in their listening/reading comprehension.

colsten

Observer_22 wrote: »

I understand that my existing provider must act appropriately but there is uncertainty - not least from HMRC in my limited experience - whether HMRC will allow additional cash ISA deposits in the same FY once an individual has already invested to the current annual maximum. If so, bang goes £10K x 2 of the tax free allowance?

There is no uncertainty about ISA transfers, except perhaps in your view. HMRC have defined it quite clearly. All ISA providers do know that ISA transfers do not count towards the annual allowance and that there are no "additional cash deposits" involved.

An ISA transfer means you instruct the new provider to make the transfer. If you decide to move the money yourself, it is not classed as an ISA transfer.

KGriff

Observer22,

There are other things to consider here (well possibly) ... If you and your wife, for example, hold say a little under £80,000 to £85,000 each, in an ISA, such as the 2015 Leeds 2yr Fixed Rate ISA (issue 65) with interest rate 2.1% (as an example), then it is likely at the end of year 1, your ISA funds may exceed the limits of the FSCS and I would assume that will certainly be the case when the limit drops to £75,000 in April 2016, but if you were to transfer out (using the new providers transfer form) any part of your 'fixed' funds, before the end of the 2 year period, you would probably end up losing money under the current ISA terms and conditions, such as a loss of 3 months interest etc. So just check the current 'terms' of your present ISA beforehand.

You have not yet stated the terms and conditions of your current ISA provider and the one I have used here above, is just an example.

My wife and I are in a similar position and we are likely to exceed the FSCS limit in April 2016, but my thoughts are that the two banks where our ISA'S are held separately, are highly unlikely to go under, so my decision is take a chance, rather than accept 'transferring' part of the ISA out to what may be a ’lower-paying interest' ISA. I see it as quite a small risk in our situation, with all things considered.

I think the issue here is very much an individual decision, where more things may need to be considered than simply just shifting the money to remain within the FSCS compensation scheme limit. My advice would be to weigh up all the risks before you make your decision to move your money.

colsten

KGriff wrote: »

There are other things to consider here (well possibly) ... If you and your wife, for example, hold say a little under £80,000 to £85,000 each, in an ISA, such as the 2015 Leeds 2yr Fixed Rate ISA (issue 65) with interest rate 2.1% (as an example), then it is likely at the end of year 1, your ISA funds may exceed the limits of the FSCS and I would assume that will certainly be the case when the limit drops to £75,000 in April 2016, but if you were to transfer out (using the new providers transfer form) any part of your 'fixed' funds, before the end of the 2 year period, you would probably end up losing money under the current ISA terms and conditions, such as a loss of 3 months interest etc. So just check the current 'terms' of your present ISA beforehand.

the ISA providers have been told by the FCA they must not charge account holders who reduce their balance because of the drop in FSCS

KGriff wrote: »

my thoughts are that the two banks where our ISA'S are held separately, are highly unlikely to go under

You are free to decide what you feel is best for yourself but it seems a complete gamble to determine that any bank is highly unlikely to go under.

KGriff

colsten wrote: »

the ISA providers have been told by the FCA they must not charge account holders who reduce their balance because of the drop in FSCS.

Neither of our accounts terms and conditions have yet been altered to reflect this claim/statement, which appears to me could be advice rather than anything formal in writing, unless George Osborne includes it in his Autumn Statement. My wife and I will abide by our accounts terms and conditions, until such time as we see something a little more formal on this issue.

colsten wrote: »

You are free to decide what you feel is best for yourself but it seems a complete gamble to determine that any bank is highly unlikely to go under.

It is not a complete gamble, it is a level of risk that we would be prepared to take in our circumstance. The investment decisions are for each individual to decide for themselves. There is a degree of risk in any saving or investment, including those that are covered by the FSCS.

My wife and I take far more risks with managed funds and shares and see the risks here as being at the 'thin edge of the wedge', particularly as we have the ISA money in two completely separate large and reputable financial institutions. These institutions are also not connected to money held in the high paying current accounts and separate savings accounts (Santander 123, TSB Plus etc). So we try to do our best to spread the money far and wide across many institutions and minimise risk. I also include premium bonds in the portfolio's too.

My message to observer 22 was simply to look at their own situation and level of risk and see what may suit them best and to at least ensure their current ISA provider will not try to hit them with a financial penalty under their existing ISA terms and conditions.

It may help observer 22 (and me in fact), if you can provide a link or document that we can use (if necessary) to show that the FCA must not charge account holders who reduce their balance because of the drop in FSCS.

In fact it may help any forum member here, who is tied into a fixed term savings contract, to escape 'financial penalties' via their providers terms and conditions, when they try to move their 'excess' money in situations where it exceeds £75,000 post April 2016.

I'm fairly sure some financial providers may still try to invoke the penalties (if not next April, then in future years), despite the FCA comment/statement and it would be good to have that safely stored away for later use. It sounds like a good 'get out of jail free' card to me.