Accidently made two S&S ISA accounts last tax year and the total of the two ISA accounts is 21000GBP

Jhindle02

Hello, I'm an 18 year old individual who just finished High School and I wanted to invest my money as soon as possible into a stocks and shares ISA and so I done that. November 2020, I created a stocks and shares ISA with Vanguard and invested 12750GBP. Then the following year in March 2021, I invested 8691GBP into another stocks and shares ISA with Trading212. The total of these two ISAs are 21000GBP. I just found out that I went over the limit and also found out I was actually not allowed to have two different active ISA accounts in the same tax year. So I contacted the HMRC through telephone and the lady said that I could receive a letter in the mail regarding the next steps or instructions and she couldn't seem to answer any other questions regarding this topic. So my question is, what could the repercussions be and if I wanted to sell my position in a stock, would I be able to without any problem?

eskbanker

Assuming they don't just ignore a first 'offence', HMRC may advise that the second ISA is deemed to be invalid and instruct the provider to convert it to a taxable account, although the impact of this is likely to be minimal in terms of the potential for income tax or capital gains tax on the investments concerned.  No need to take any specific actions at this point but carry on managing the holdings as you'd wish anyway - if you get towards the end of the tax year without being contacted by HMRC, it might be worth recycling the T212 money out and back in again into a new ISA as 2021/22 money, assuming you have enough headroom in your annual allowance to do so....

jamesd

You've done what is needed by notifying HMRC, now just operate the accounts as normal. HMRC are likely to forgive a first offence and just remind you of the rules but this is not guaranteed.

The Trading212 account is the vulnerable, the Vanguard is safe. If you don't have sufficient money to fill the 20k subscription limit for 2021-22 it'd be worth withdrawing what's needed from the Trading212 account.

Jhindle02

eskbanker said:

Assuming they don't just ignore a first 'offence', HMRC may advise that the second ISA is deemed to be invalid and instruct the provider to convert it to a taxable account, although the impact of this is likely to be minimal in terms of the potential for income tax or capital gains tax on the investments concerned.  No need to take any specific actions at this point but carry on managing the holdings as you'd wish anyway - if you get towards the end of the tax year without being contacted by HMRC, it might be worth recycling the T212 money out and back in again into a new ISA as 2021/22 money, assuming you have enough headroom in your annual allowance to do so....

Regarding recycling the money, would it be worth taking the money out of T212 and depositing it back into the same ISA so that it acts as part of the new tax year? Or do you recommend using a different ISA provider?

Albermarle

I just found out that I went over the limit and also found out I was actually not allowed to have two different active ISA accounts in the same tax year. 

You are allowed to open more than ISA and contribute to it in a tax year. What you can not do is open two of the same type.

No problem to open a cash ISA and a S&S ISA for example, as long as overall there are  no more than £20K of new contributions .

digannio

If you do nothing and just leave it, I'd be amazed if you heard anything more about it. I certainly wouldn't try to amend things yourself. If they believe they need to take action over a minor blemish  they will but in practice you probably won't be contacted. Just to add that I'm not advocating anyone drives a coach and horses through ISA rules.

Jhindle02

digannio said:

If you do nothing and just leave it, I'd be amazed if you heard anything more about it. I certainly wouldn't try to amend things yourself. If they believe they need to take action over a minor blemish  they will but in practice you probably won't be contacted. Just to add that I'm not advocating anyone drives a coach and horses through ISA rules.

Only problem is, they could ask for the money back or something along these lines out of the blue months down the line when I had already withdrawn and used the money for other reasons. I would also like to note, I'm planning to withdraw my position in the second ISA.

masonic

Jhindle02 said:

digannio said:

If you do nothing and just leave it, I'd be amazed if you heard anything more about it. I certainly wouldn't try to amend things yourself. If they believe they need to take action over a minor blemish  they will but in practice you probably won't be contacted. Just to add that I'm not advocating anyone drives a coach and horses through ISA rules.

Only problem is, they could ask for the money back or something along these lines out of the blue months down the line when I had already withdrawn and used the money for other reasons. I would also like to note, I'm planning to withdraw my position in the second ISA.

They can't ask for the money back. It's your money. The only consideration is whether any capital gains or dividends would end up being taxable (and above your tax free allowances). If you will be selling investments and withdrawing the cash from the second ISA after a short time anyway, then unless you make a significant profit, there will be no tax to pay whatever HMRC decides to do.

On a separate point, investing should be for the long term, so it seems rather unusual to pay £21k into S&S ISAs only to withdraw a large portion of the money months later.

Jhindle02

masonic said:

Jhindle02 said:

digannio said:

If you do nothing and just leave it, I'd be amazed if you heard anything more about it. I certainly wouldn't try to amend things yourself. If they believe they need to take action over a minor blemish  they will but in practice you probably won't be contacted. Just to add that I'm not advocating anyone drives a coach and horses through ISA rules.

Only problem is, they could ask for the money back or something along these lines out of the blue months down the line when I had already withdrawn and used the money for other reasons. I would also like to note, I'm planning to withdraw my position in the second ISA.

They can't ask for the money back. It's your money. The only consideration is whether any capital gains or dividends would end up being taxable (and above your tax free allowances). If you will be selling investments and withdrawing the cash from the second ISA after a short time anyway, then unless you make a significant profit, there will be no tax to pay whatever HMRC decides to do.

On a separate point, investing should be for the long term, so it seems rather unusual to pay £21k into S&S ISAs only to withdraw a large portion of the money months later.

 
Vanguard account, I invested 12750GBP and it is currently at 14000GBP. Trading212 account, I invested 8700GBP and it is currently at 11000GBP. Total investment, around 21500GBP. Total profit 3550GBP. 

So let's say HMRC had a problem with me owning 2 S&S ISAs and exceeding the ISA allowance. If I was to withdraw 14000GBP from my Vanguard and withdraw 11000GBP from Trading212, since I have not exceeded my capital gains tax-free allowance, I wouldn't have any repercussions or consequences from doing withdrawing? If there are no problems, I would be able to use the rest of this years ISA allowance with no problems?

jamesd

Best to read what HMRC says about repair and voiding because you appear to be eligible for the repair situation if HMRC chooses to take action beyond just reminding you.

"ISA repair – removal of excess subscriptions

There are 3 situations in which excess subscriptions must be removed from an ISA.

The first is where the investor subscribes to a valid combination of ISAs, but subscribes more than the overall subscription limit in total.

The second is where the investor subscribes to an invalid combination of ISAs (more than one ISA of the same type) and subscribes more than the overall subscription limit in total."

[third is lifetime ISA related]

"ISA repair – action by the manager

The HMRC compliance unit will write to the investor before instructing you of the action to be taken. The investor will have been given the opportunity to query the information provided to HMRC before HMRC write to you. In all cases the HMRC compliance unit will issue a notice of discovery to you saying which ISAs can be repaired, and to what extent. They will also inform the investor of the action to be taken by you.

You should not repair an investor error without a notice of discovery. The date of the notice is the date of repair of the invalid ISA.

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.

The following paragraphs provide more details, but in summary, where an ISA is repaired or voided, you should proceed as follows:

o interest earned on cash should be taxed in accordance with repair and voiding

o where you have received net income and has claimed tax back from HMRC (see for example REIT payments in Property income distributions), you must repay the tax to HMRC and pay income net to the investor

o where you received gross income, you should pay the income out gross to the investor

o [LISA bit removed by me]

In all cases investors must be made aware that there may be more tax to pay and that income removed from the ISA for periods after 6 April 2016 will count towards the investor’s personal savings allowance.

ISA part repair

This is where income (arising prior to date of repair) is to be taxed and some of the invalid subscription and the associated (taxed) income has to be removed from the ISA.

First:

Cash ISA - any interest earned by the invalid subscription paid on or before 5 April 2016 is taxed

Stocks and Shares ISA - follow the advice at repair – action by manager for interest arising on cash and Interest on ISA investments for other interest

Second, remove from the ISA that element of the invalid subscription that the partial repair notice says must be removed.

Third, remove from the ISA that portion of the income that relates to element of the invalid subscription that must be removed.

From the date of repair the excess subscriptions are not held in an ISA. The balance after removal of the excess is treated as having been held in the ISA from the date of repair.

Within 30 days of the date of the notice you should identify the investments bought with the excess subscriptions and remove them from the ISA, together with any income arising on those investments. If the investments include insurance, the investor should decide which investments should be removed - see voiding.

Where interest is credited to a stocks and shares ISA, you should follow the guidance on Interest on ISA Investments and proceed as follows:

o where the payment was received under deduction of tax, you have claimed the tax, and have received payment from HMRC, you must repay the tax to HMRC

o where the payment is received gross, you only need to tell the investor that they must account for any tax that may be due

Where an interest distribution or property income distribution is credited to a stocks and shares ISA, you should follow the advice on interest on ISA investments and proceed as follows:

o where the payment was received under deduction of tax, you have claimed the tax, and have received payment from HMRC, you must repay the tax to HMRC

o where the payment is received gross, you only need to tell the investor that they must account for any tax that may be due"

masonic

Jhindle02 said:

masonic said:

Jhindle02 said:

digannio said:

If you do nothing and just leave it, I'd be amazed if you heard anything more about it. I certainly wouldn't try to amend things yourself. If they believe they need to take action over a minor blemish  they will but in practice you probably won't be contacted. Just to add that I'm not advocating anyone drives a coach and horses through ISA rules.

Only problem is, they could ask for the money back or something along these lines out of the blue months down the line when I had already withdrawn and used the money for other reasons. I would also like to note, I'm planning to withdraw my position in the second ISA.

They can't ask for the money back. It's your money. The only consideration is whether any capital gains or dividends would end up being taxable (and above your tax free allowances). If you will be selling investments and withdrawing the cash from the second ISA after a short time anyway, then unless you make a significant profit, there will be no tax to pay whatever HMRC decides to do.

On a separate point, investing should be for the long term, so it seems rather unusual to pay £21k into S&S ISAs only to withdraw a large portion of the money months later.

 
Vanguard account, I invested 12750GBP and it is currently at 14000GBP. Trading212 account, I invested 8700GBP and it is currently at 11000GBP. Total investment, around 21500GBP. Total profit 3550GBP. 

So let's say HMRC had a problem with me owning 2 S&S ISAs and exceeding the ISA allowance. If I was to withdraw 14000GBP from my Vanguard and withdraw 11000GBP from Trading212, since I have not exceeded my capital gains tax-free allowance, I wouldn't have any repercussions or consequences from doing withdrawing? If there are no problems, I would be able to use the rest of this years ISA allowance with no problems?

Everything you have done in the Vanguard account is ok, so those gains (and any dividends) can be ignored. If the total gain within the T212 account is £3,550, then that is well within your £12.3k annual CGT allowance, and presumably it is not made up of mostly dividends, so any dividends would fall within your £2k dividend allowance, assuming you don't have substantial capital gains or dividends from other sources. So even in the worst case of HMRC declaring the second S&S ISA invalid and voiding it, there would be no tax to pay. Withdrawing money from the accounts won't make any difference, the only scenario where it might is if you made a partial withdrawal from T212, HMRC might still instruct them to remove another £1,450 (the amount by which you exceeded the annual allowance) later. As mentioned above, it is unlikely HMRC will do anything, there are people who have made similar errors several years ago and never had any communication from HMRC about it. It would be worthwhile to keep records of your account transactions and contract notes at T212 just in case you need them in the future to prove no tax would be payable.

None of this will impact this years ISA allowance because HMRC will treat tax years separately when dealing with breaches of the ISA rules.