Opened new ISA and paid into old one in same tax year

Mithy

I have mistakenly paid into two ISAs this tax year (2017/2018). I opened a new one with £20,000 then paid £1 into an ISA which I already had and which contains contributions over many years. I realised right away that I had contributed £1 above my annual allowance, and then found out that I also can only contribute to one cash ISA per year. The ISAs are with different banks.

I called the HMRC ISA helpline right away to ask what to do and they said they "couldn't give advice" and that I should contact the banks, or otherwise wait for HMRC to write me a letter. I asked what instructions the letter would contain but they said I would have to wait for the letter.

I contacted both banks and they said they can't give advice and I should contact HRMC. (That seems reasonable - the rules are set by HMRC rules so HMRC would need to specify what to do if they are not followed, particularly since in this case the old and new ISAs are with different banks, so neither sees the full picture.)

My questions are:
1. Is it really correct that HMRC doesn't give advice and that I have to wait for them to write to me? I'd really prefer to get it resolved soon.
2. For anyone who has been in a similar situation (paid into an old ISA and opened a new one), what did HMRC direct you to do?

Thanks, Mithy

Alter_ego

Don't panic, don't do anything!
HMRC will eventually contact you. They will instruct one of the providers to refund your cash, including interest. You will then be responsible for paying tax on the interest.
This is from my own personal experience.

Mithy

Hmmm okay, I am in a bit of a flap right now Thanks for the quick reply, I guess I will just have to wait...!

alewin

Mistakes can happen but what's with the £1 being paid into an existing ISA. What were you trying to achieve?

Wait till HMRC contact you, worst case they will tell you to close one of the ISA's, normally the second one you paid into and you could be liable to tax on the interest.
Don't do anything yourself or you could end up closing the wrong one.

Mithy

The £1 was because there's a better interest rate if you contribute every tax year - there's no minimum contribution.

Closing the ISA would be a very bad outcome because all my previous years' ISA contributions are there. If I had to close it, I'd lose about 10 years of ISA contributions. Not good.

isasmurf

Mithy wrote: »

The £1 was because there's a better interest rate if you contribute every tax year - there's no minimum contribution.

Closing the ISA would be a very bad outcome because all my previous years' ISA contributions are there. If I had to close it, I'd lose about 10 years of ISA contributions. Not good.

Don't worry, the most that HMRC will do is instruct the ISA manager to remove the excess subscriptions and for you to be liable for tax on the interest of the excess. The balance from previous years is safe. However, don't expect to hear anything for 18 months or more. HMRC aren't sent information on ISAs until after the end of the tax year.

If it eases your mind, have a read of this from disallowed combination of isas down to the end of repair -action by you. This is the guidance given to ISA managers.

soulsaver

HMRC won't give a jott about £1. It happens all the time. I've done it for £15k when I was on the wrong screen.
The platform moved it over to the trading account (same day) and asked me to inform HMRC.
HMRC said, '..you've earned no interest nor made any gain'? Nowt. They said, 'You've moved it back out? Yes.. 'I don't know why your platform told you to ring us then... bye'.

EachPenny

Mithy, you say there is no minimum contribution for the older ISA, but say you get a better interest rate if you pay something in, hence the one pound.

So you might want to check the T&Cs to see what would happen if the one pound contribution is eventually reversed - because you may then drop down to the lower interest rate.

As you have around 10 years of contributions in that ISA even a small reduction in the interest rate could have a significant effect. Presumably you already know what the rate would be if you make no contributions in any given tax year?

I don't know what the ISA rules have to say about it, but rather than waiting and seeing what happens at some point in the future it might be prudent (if you stand to loose a lot with the older ISA) to check if you can use any cooling-off period now to make sure its the new (2017/18) ISA which gets closed and those contributions which get returned, leaving the older larger ISA to continue earning at the higher rate.

I'm sure someone else will know the ISA rules in enough detail to confirm what happens to your allowance if you use a cooling-off cancellation after contributing to a second ISA. Don't do anything without being sure which is the best option!

alanq

A spokesman for HMRC said those who break the Isa limit should “sit tight and expect contact”.
“We will identify the error and contact the investor to sort things out. There are ordering rules about which subscriptions are 'invalid' and if the investor does the wrong thing and removes some subscriptions now, we may contact them and say that in fact monies held with the other manager must be removed. The position is only clear after the end of the tax year when we can look at what has happened,” said a spokesman.

http://www.telegraph.co.uk/finance/personalfinance/investing/isas/11355665/I-accidentally-put-too-much-money-into-my-Isa-what-should-I-do.html

Guidance for ISA Managers No wonder no one wished to advise you.