Exceeding the Cash ISA limit

drmrbrewer

I'm not entirely clear on what happens when one pays too much into a cash ISA account in any one tax year.

What happened in my case is that I initiated a first transfer into the cash ISA from another of my accounts quite a number of days before the start of the tax year. I then initiated a second transfer of the full £3000 allowance a few days after the start of the tax year. Obviously, I had expected that the first payment would be received in the previous tax year, and the second in this tax year.

But I now find that my statement is showing that the first payment was only received in my ISA account on 10 April (quite how it took that long, I'm not sure). The second payment then took the balance over the £3000 limit.

So, what happens in this situation? Do I: pay tax on the full amount for being a naughty boy? Or only on the amount over £3000? Can this be rectified by withdrawing some cash to take the balance below the limit? Does Brown (or Darling) lock me up? Or can I somehow claim that the first payment should have been received in the last tax year in the ordinary course of things and get away with it, with some Gallic-style hand-waving?

I did some searching but was surprised to find nothing on this subject -- maybe I'm not cut out to be a searcher (or indeed a saver by all accounts).

Thanks,

Mike

PS I've tried ringing the institution in question several times, but have given up on each occasion in severe frustration.

RayWolfe

If the first payment was a transfer, it would have been a prior years ISA and it doesn't matter when it was received in your new account.
You are in the clear, you can still do the full 3K in this year.

drmrbrewer

Well, that's interesting. I didn't think the system could ever be fair enough to consider the date the transfer was initiated, rather than the date it was (at least showing as) received.

So, even if it says "this transfer will usually take 3 working days" or similar, and despite that warning you initiate the transfer the day before the deadline, then it's OK?

Out of interest, what is the situation where the ISA limit is definitely exceeded in a single tax year? To me it seems that this would happen quite frequently, but the implications are not too clear -- it probably says in the T&Cs (which I probably threw out) but I would expect there to be a clear explanation on the web somewhere.

Cheers,

Mike

dunstonh

Well, that's interesting. I didn't think the system could ever be fair enough to consider the date the transfer was initiated, rather than the date it was (at least showing as) received.

Date is irrelevent. ISA transfers wouldnt go towards your contribution limit again because they already did that when you paid your money in the first place.

ISA allowances are a contribution allowance. You are allowed £7000 per tax year in total (£3000 mini cash). As soon as the new tax year begins, you get a brand new allowance.

If you exceed the contributions in the tax year, then the surplus is returned to you with interest recalculated for tax to be deducted. It can take upto 18 months for that to happen as the data sent from providers to HMRC and then HMRC computers filtering it can take a bit of time.

debbie42

If it's an ISA to ISA transfer then the date is irrelevant. If it's a cash transfer into an ISA (i.e. not from another ISA) then I would have thought it was very relevant.

My interpretation of the original post is that it was the latter, but others have interpreted differently, by the look of their advice!

debbie42

drmrbrewer wrote: »

Out of interest, what is the situation where the ISA limit is definitely exceeded in a single tax year? To me it seems that this would happen quite frequently, but the implications are not too clear -- it probably says in the T&Cs (which I probably threw out) but I would expect there to be a clear explanation on the web somewhere.

HMRC have a helpline which might be easier to access than your ISA provider's:

http://www.hmrc.gov.uk/leaflets/isa-factsheet.htm

dunstonh

FYI, I was interpreting it as an ISA transfer.

drmrbrewer

OK. I see where the confusion may be. RayWolfe mentioned a "transfer". I took that to mean a normal bank transfer -- i.e. money from one bank to another. I see now that perhaps RayWolfe was talking about a transfer from one ISA to another. I was somewhat confused initially by dunstonh's suggestion that "date is irrelevent" -- because date MUST be relevant -- but can see that it would be irrelevant in the case an an ISA transfer, as debbie42 has said.

To clarify: I am NOT talking about a transfer of my ISA from one provider to another. I'm talking about the situation where I'm opening a new ISA (haven't contributed to an ISA for years), and transferring cash into it from a bank/savings account.

Thanks,

Mike

drmrbrewer

Thanks, Debbie. I just phoned the HMRC helpline -- you're right... I got straight through to someone to talk to, instead of waiting hours in a queue trying to contact the bank concerned -- far less aggravating.

They basically said that I wouldn't have to withdraw the over-payment on this occasion. They said "if" HMRC ever discovered this over-payment then I would get a letter saying thay they're aware of what I'd done, but that they wouldn't take any action. I guess my card would be marked with a black mark at that point, and if I did something similar on another occasion they would go further and take steps to reclaim the tax from me (whether on the whole amount or only the over-payment, I'm not sure).

So, it still all seems a little vague to me... lots of if, buts and maybes.

I am somewhat surprised that there isn't some mechanism enforced on each ISA provider to ensure that the limit is not exceeded (e.g. over-payment refunded / letter sent to customer / whatever). Instead, the issue can just remain hidden for a number of months / years until HMRC finally discover it and start asking for money back.

Mike

dunstonh

am somewhat surprised that there isn't some mechanism enforced on each ISA provider to ensure that the limit is not exceeded (e.g. over-payment refunded / letter sent to customer / whatever). Instead, the issue can just remain hidden for a number of months / years until HMRC finally discover it and start asking for money back.

There is a mechanism. The providers supply the details, via NI number to HMRC and HMRC then do a check (computerised). However, it can take upto 18 months for that to occur. There is no quicker way to do it as the providers cannot supply that data to each other.

drmrbrewer

dunstonh wrote: »

There is a mechanism. The providers supply the details, via NI number to HMRC and HMRC then do a check (computerised). However, it can take upto 18 months for that to occur. There is no quicker way to do it as the providers cannot supply that data to each other.

Just an automatically-generated information letter from the provider would be enough in this case: "we have received a deposit of £xxxx (> £3000) into your mini cash ISA this tax year, and would ask you to check that this complies with the ISA rules as summarised below... [there follows helpful advice about ISA limits / ISA transfers etc]".

That would have been enough to alert me to the fact that my first transfer did not reach the ISA provider in time to count in the previous tax year, so that I could take immediate steps to rectify the situation once the second transfer pushed me over the limit... Instead of having to wait 6 months for my first statement, or 18 months for HMRC to come knocking at my door, to find out that it took ~10 days for the first bank transfer to reach the account.

Even if HMRC paid the providers the tuppence it probably costs to send out these letters, they're bound to benefit overall because of the cost of chasing underpaid tax 18 months down the line, and the lost tax revenue in the high number of cases they just let go. In most cases there would be an innocent reason why the overpayment has occurred, which the customer would happily rectify immediately without putting HMRC to the trouble.

Mike