Non Flexible ISAs

mg12

I need some ISA advice please!! I have an ISA with Kent Reliance which is not a flexible ISA.

I accidentally overpaid into my ISA account this year and the next day withdrew the difference. Since then Kent Reliance has bounced back my initial overpayment and rejected it as it was over the 20,000 limit. As a result the amount I withdrew to correct my mistake (£19,000) has been taken out of last year's allowance.

As it isn't a flexible ISA they do not allow me to transfer back to make up the loss on last year's allowance.

My question is what can I do about this? I suspect this isn't allowed, but can I open another account to put in last years £19,000 as well as put this years £20,000 back into Kent Reliance?

My main issue is I don't think Kent Reliance should just transfer back without telling me and have the £19,000 I withdrew taken out of last years allowance as I was only trying to correct a mistake. From my research they should accept the £35,000 and HMRC should adjust it on my tax at the end of the year if I hadn't withdrawn the difference

Any advice would be much appreciated!

eskbanker

If you're saying you tried to pay in £35K then it's no surprise that Kent rejected it, so to me they've done nothing wrong - there are indeed provisions within the rules for mistakes to be corrected but only if they're not prevented in the first place, and in this case it was easy (and correct) to prevent the mistake rather than waiting until later to tidy it up.

The money you withdrew may have been treated as last year's allowance by Kent but now that you've withdrawn it it's lost that status, so you can't replace it in any ISA with any provider as if it was last year's.

So, all you can do now is to subscribe up to £20K in a 2019/20 ISA and accept the consequences of what you did earlier....

grumiofoundation

mg12 wrote: »

From my research they should accept the £35,000 and HMRC should adjust it on my tax at the end of the year if I hadn't withdrawn the difference

Where someone is paying into multiple ISAs of different types with different providers during the year, cash lifetime etc, they may go over the limit without any of the providers (or them) being aware they have gone over the limit. In this case HMRC adjusts at the end of the year.

However the ISA provider has a duty to ensure you don't go over the limit, since you paid over the limit in one go they are obviously aware so had to deal with this they have done so by returning the cash.

https://www.gov.uk/guidance/manage-isa-subscriptions-for-your-investors

mg12 wrote: »

My question is what can I do about this? I suspect this isn't allowed, but can I open another account to put in last years £19,000 as well as put this years £20,000 back into Kent Reliance?

Unfortunately you made an error in withdrawing the 19000 without talking the the ISA provider first. Presuming when you say open another account you mean another ISA, if so what do you gain from this? You would just end up exceeding this years ISA allowance so wont gain any tax free benefit.

grumiofoundation

Incidentally, wonder if anyone knows if there are any penalties HMRC can/would implement if someone deliberately, rather than accidentally, exceeds the ISA allowance?

masonic

grumiofoundation wrote: »

Incidentally, wonder if anyone knows if there are any penalties HMRC can/would implement if someone deliberately, rather than accidentally, exceeds the ISA allowance?

They "repair" or "void" the ISA depending on exactly what you did. "Repairing" it means that some of your subscriptions can remain in the ISA and keep their tax free status, while part of the ISA funds are removed and interest/dividends/capital gains generated on them taxed. "Voiding" it means it is treated as if it were not an ISA from the date of first breach.

My understanding is that this would only relate to specific tax years, rather than a whole ISA if built up over several tax years.

Reed_Richards

For each type of ISA there is the one you contribute to this year and those from previous tax years. The rules for each are different and I think that the notion that the two can be combined together into a single entity is a convenient fiction. Financial institutions will let you keep both within the same numbered account in the hope that inertia will keep you adding money year-on-year rather than opening a new account each new tax year and therefore possibly shopping around for a better deal. @mg12 has discovered another reason why it's not in your interest to play along with that.

eskbanker

Reed_Richards wrote: »

For each type of ISA there is the one you contribute to this year and those from previous tax years. The rules for each are different and I think that the notion that the two can be combined together into a single entity is a convenient fiction.

It's fact, not fiction - for someone with an ISA containing current and prior year money, the existence of specific rules constraining what can be done with the former doesn't mean that they're two separate ISAs artificially shoved together and dressed up as one, it is just the one ISA!

masonic

As far as HMRC is concerned an ISA containing subscriptions made over multiple tax years consists of no more than two accounts, the current year account and the prior years account.

"An Investor must either do one or both of the following:

- 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)
- transfer 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)"
https://www.gov.uk/guidance/transfer-an-isa-if-youre-an-isa-manager

As far as ISA managers are concerned, there is just one account, which is clear from the way they operate the account. Only upon transfer are the funds held in the ISA differentiated, and it is permitted to sell investments bought with prior years subscriptions, then transfer the proceeds as current year subscriptions.

Imagine how difficult it would be to manage a S&S ISA if there really was a separate account for each tax year!

grumiofoundation

Reed_Richards wrote: »

For each type of ISA there is the one you contribute to this year and those from previous tax years. The rules for each are different and I think that the notion that the two can be combined together into a single entity is a convenient fiction. Financial institutions will let you keep both within the same numbered account in the hope that inertia will keep you adding money year-on-year rather than opening a new account each new tax year and therefore possibly shopping around for a better deal. @mg12 has discovered another reason why it's not in your interest to play along with that.

But they didn't 'play along with that' ? Unfortunately they didn't follow the rules that are set out for subscribing to ISAs.

masonic

grumiofoundation wrote: »

But they didn't 'play along with that' ? Unfortunately they didn't follow the rules that are set out for subscribing to ISAs.

(edit: I think we are actually in complete agreement - if the 'they' above was meant to refer to the OP, rather than the provider as I thought at first)

Kent Reliance does not offer ISA flexibility: https://www.moneysavingexpert.com/savings/flexible-ISAs/#provider
(their own website is down at the moment, so relying on MSE's list)

Therefore the rules have been correctly followed:

1) The ISA manager has opted not to make their ISAs flexible, as permitted by the rules
2) The overpayment was rejected as required by the rules
3) Non-flexible withdrawal made in accordance with the account holder's instructions (account holder did not contacting the ISA manager for advice before withdrawing, which would have prevented this mistake)
4) Current year allowance not increased because it was not a flexible ISA and therefore no replacement subscriptions can be made

grumiofoundation

masonic wrote: »

(edit: I think we are actually in complete agreement - if the 'they' above was meant to refer to the OP, rather than the provider as I thought at first)

Complete agreement! :beer: