ISAs and referral rewards

Liffy99

Hi
Last year I invested the full £20k into cash and stocks ISAs (Nutmeg). During the year I received two £100 referral bonuses from Nutmeg for 'referring friends'. Are these rewards counted as part of overall ISA investment - in which case I will have oversubscribed for the year ?
In the process of using this year's ISA allowance so may well reduce total investment to, say, £19,500 to allow breathing space for any future possible rewards.
Have I got this right ?

bowlhead99

As the referral payments you received were tied to your making referrals of other customers to them, and were not a sign-up bonus for you opening your own account and starting to incur costs and fees for their services, it doesn't seem like you could call it either investment income or cashback - it's just other income. Just a personal view as I don't have an account with them.

If it isn't a return on investment or refund of charges, the choice to pay it into your ISA account (by either you or them) would seem like a subscription of new investment money.

However the proof of the pudding would probably be, what do they consider your 2018/19 total ISA subscription to be? I.e. what will they report to HMRC at the end of the tax year? Only they know the answer to that, so ask them. If they don't tell HMRC that your total subscription was a number bigger than you actually contributed yourself in cash for the tax year (which was within your limit), HMRC won't know or suspect that there is anything to 'repair'.

If you think that HMRC may later (one way or another) discover that you over subscribed, the route to repair it would be to remove the excess subscription from the account and consider any returns from it taxable, and if you deliberately 'undersubscribe' for the current year you would at least have the capacity to stuff the proceeds back in to the product within the current year allowance

masonic

Are you sure this money was paid into your S&S ISA and isn't held separately? I can't see any scenario in which this couldn't be considered a subscription. Unfortunately, the last day you could have taken action to prevent yourself oversubscribing was last Friday.

Any corrective action you now take may be counterproductive as HMRC will take action based on your closing balance on 5th April. If you have oversubscribed, then the ISA in which the subscription was made that took you over your allowance will be invalid and it will continue to be invalid until repaired.

You will need to clarify with Nutmeg exactly how much was subscribed to your ISA during the last tax year.

Liffy99

Not quite so straightforward. I have a mixture of several ISAs and invested a total of £20k in, I think, two of them (a stocks ISA and a Cash ISA) during 2019/19.
Neither of these however were Nutmeg where I have not invested since 2017.
However, unless Nutmeg can show that the rewards have been held in cash (included in my account total) I assume that the £200 reward would simply have been added to my ISA.
So that would mean I have invested £20,200 in all.
Are you saying that the ISA status of the entire ISA balance would be revoked ?

masonic

Liffy99 wrote: »

Are you saying that the ISA status of the entire ISA balance would be revoked ?

See this guidance (caution, long read): https://www.gov.uk/guidance/close-void-or-repair-an-isa-if-youre-an-isa-manager#repair-void

"All investments in a repairable ISA lose their tax exemption from the date of the first invalid subscription up to the date of repair. Up to this date the repairable ISA is effectively treated in the same way as a void ISA.

Subscriptions to a repaired ISA for years other than that covered by the notice of discovery are not affected by that notice."

So only subscriptions made during the same tax year as you over-subscribed would lose their tax status - from the date of the first over-subscription up until the date of the repair. You would need to find out when Nutmeg pushed your referral money into your S&S ISA (if at all). If this was not the last subscription made during the tax year, it could affect your other S&S ISA or your cash ISA instead.

If it affects your other S&S ISA (i.e. the Nutmeg S&S ISA subscription was made before the first subscription to your other S&S ISA), then all of the subscriptions made to the other S&S ISA may be removed, because it was the second S&S ISA you subscribed to in 2018/19 and you also exceeded the overall subscription limit, making the ISA ineligible for repair. See https://www.gov.uk/guidance/close-void-or-repair-an-isa-if-youre-an-isa-manager#voiding

"Where an ISA cannot be repaired it must be voided. This is where all income for the invalid subscription and the invalid subscription has to be removed from the ISA. Valid subscriptions from previous (and possibly later) years are unaffected."

If Nutmeg has inadvertently subscribed money to your ISA without your knowledge or consent, then you'd be entitled to redress to cover any loss you suffer (both immediately and in future tax years) as a result of this error. It is possible that if they declare to HMRC that it was their error, they would be allowed to reverse the subscription with no further consequences to you.

Reed_Richards

masonic wrote: »

You would need to find out when Nutmeg pushed your referral money into your S&S ISA (if at all).

I am surprised that Nutmeg let you oversubscribe, if that is what has happened. I would have thought that it would be rare to find a financial institution that would let you put more than £20k into a single ISA in the one tax year.

badger09

Reed_Richards wrote: »

I am surprised that Nutmeg let you oversubscribe, if that is what has happened. I would have thought that it would be rare to find a financial institution that would let you put more than £20k into a single ISA in the one tax year.

I agree it would be rare for a financial institution to let you put, or put in on your behalf:cool: more than £20k into a single ISA in one tax year.

However in OP's case, Nutmeg have no way of knowing what, if anything, he/she subscribed to ISAs in 2018/19

Liffy99 wrote: »

Not quite so straightforward. I have a mixture of several ISAs and invested a total of £20k in, I think, two of them (a stocks ISA and a Cash ISA) during 2019/19.
Neither of these however were Nutmeg where I have not invested since 2017.
However, unless Nutmeg can show that the rewards have been held in cash (included in my account total) I assume that the £200 reward would simply have been added to my ISA.
So that would mean I have invested £20,200 in all.
Are you saying that the ISA status of the entire ISA balance would be revoked ?

masonic

Reed_Richards wrote: »

I am surprised that Nutmeg let you oversubscribe, if that is what has happened. I would have thought that it would be rare to find a financial institution that would let you put more than £20k into a single ISA in the one tax year.

No money was subscribed to the Nutmeg S&S ISA by the OP in the same tax year (full £20k allowance used elsewhere), the only subscription would have been made by Nutmeg, if any was made at all.