Accidentally over-subscribed to S&S ISA - how best to reverse it?

itm2

I made a £20k top-up to a S&S ISA with Interactive Investor a couple of weeks ago, using a Nationwide current account debit card. I subsequently remembered that I had already used my ISA allowance for 2021-22 last year (on a Nationwide cash ISA). I contacted II to ask if they could simply reverse the payment (the funds were not invested, so are still held as cash in the II account). They've told me that they are unable to reverse the subscription to the ISA, as HMRC do not deem the transaction as a 'genuine error'.
My question is: can I simply login to my II ISA and withdraw the £20k back to my Nationwide account, or would this affect my ISA allowance for the current year?

[Deleted User]

Hi,

found this,

What happens if I exceed my Isa allowance?

Because it's possible to have several Isas with different providers, there is a risk that you might pay in too much during a single tax year. 

At the end of the tax year, records for individuals will be checked, so HMRC will know that you've paid in too much money. You may be let off with a warning letter if it's the first time this has happened but it's best to check yourself.

Where HMRC decides to take action, your Isa provider may be instructed to remove over-subscriptions and tax any income or growth related to that money. 

HMRC advises against trying to correct the mistake by drawing money out - you can call its Isa helpline instead on 0300 200 3312.

dunstonh

As long as the error is minor, the one "get out of jail free card" is applied to your NI number.   For larger errors, they will instruct the ISA manager to remove the ISA status and convert it to a GIA (unwrapped).   For most people, that would still mean it is tax free, at this time, as you need around £100k+ before tax becomes an issue on GIAs (unless you are a shareholding director).

Do nothing is the best option and wait and see what HMRC say.  It will either be the let off or an adjustment to the account allowing you to bed & ISA it in a later tax year.

eskbanker

dunstonh said:

Do nothing is the best option and wait and see what HMRC say. 

It doesn't seem to be worth trying to correct the error by withdrawing the funds, but literally leaving them uninvested until HMRC takes action (which could be a year or more) is quite an opportunity cost....

pip895

I think as the funds are uninvested, I would simply withdraw them from the S&S ISA and probably invest in a GIA with the intention of moving them back into the isa in a few months time.  It seems to me that anything else will either have a potentially large opportunity cost or complicate matters. 

I can see that the advise to do nothing would be good if the situation was more complex, but as it is you are essentially  just reversing an accidental payment.  You may or may not get a rap across the knuckles in a few months time.

It seems to me that your biggest mistake was investing in a cash ISA - I have never understood why anyone would at current interest rates..

masonic

pip895 said:

I think as the funds are uninvested, I would simply withdraw them from the S&S ISA and probably invest in a GIA with the intention of moving them back into the isa in a few months time.  It seems to me that anything else will either have a potentially large opportunity cost or complicate matters. 

That would make matters worse because the II S&S ISA is not flexible. Making the withdrawal will not reverse the payment and the ISA will still be oversubscribed. Flexibly withdrawing the 2021/22 subscriptions from the Nationwide cash ISA would be indistinguishable to HMRC from flexibly withdrawing money and replacing it in an ISA of a different type, which is allowed. It would also correct the 'error' of subscribing to a cash ISA in the current climate. Assuming of course the NW ISA is flexible and not a fixed term product.

DoublePolaroid

dunstonh said:

Do nothing is the best option and wait and see what HMRC say.  It will either be the let off or an adjustment to the account allowing you to bed & ISA it in a later tax year.

Not that I’m planning on “mistakenly” over-subscribing my ISA’s for this year, but my interpretation of this part of your post is that it’s possible the error could be allowed to stand with the over-subscription being allowed to retain its tax-wrapper status. Or have I simply read that wrong?

masonic

DoublePolaroid said:

dunstonh said:

Do nothing is the best option and wait and see what HMRC say.  It will either be the let off or an adjustment to the account allowing you to bed & ISA it in a later tax year.

Not that I’m planning on “mistakenly” over-subscribing my ISA’s for this year, but my interpretation of this part of your post is that it’s possible the error could be allowed to stand with the over-subscription being allowed to retain its tax-wrapper status. Or have I simply read that wrong?

That is correct. There have been several accounts on here of posters who in the past were merely sent a "Naughty! Don't do it again" letter. It can depend on circumstances, and HMRC is entitled to change its position at any time.

enthusiasticsaver

I am not sure how rigidly HMRC would deal with this but surely you could withdraw the £20k from the cash isa which arguably is not a great place for it anyway and put it in an internet saver account (non isa) or premium bonds? 

george4064

I would withdraw it and invest in a GIA, then bed & ISA it next tax year. Expect something from HMRC though.l

dunstonh

DoublePolaroid said:

dunstonh said:

Do nothing is the best option and wait and see what HMRC say.  It will either be the let off or an adjustment to the account allowing you to bed & ISA it in a later tax year.

Not that I’m planning on “mistakenly” over-subscribing my ISA’s for this year, but my interpretation of this part of your post is that it’s possible the error could be allowed to stand with the over-subscription being allowed to retain its tax-wrapper status. Or have I simply read that wrong?

Correct.   HMRC often just say we will let you off this once but don't do it again.    

If you buy the investments now, if they tell the provider/platform to remove it from the ISA, they will turn it into a GIA.  So, as long as you are not getting over £2000 in dividends a year, that GIA wouldn't be taxable anyway.