Gone over cash ISA limit by accident - what to do? 11 December 2022 at 3:59PM edited 11 December 2022 at 4:03PM in ISAs & tax-free savings 7 replies 527 views

Oasis1

Paid 20k into cash ISA (Oct) and 4k into LISA (April) this financial year. Didn't realise they both count as cash ISAs for the 20k limit.

Shall I withdraw 4k from the cash ISA? Do I need to notify anyone? What about the interest earnt?

Reed_Richards

It's not that they both count as cash ISAs, it's the £20k limit on all ISAs that's your problem.  If your Cash ISA is a flexible ISA you could probably withdraw £4k from it and nobody would notice.  However what you should do is notify the provider of your Cash ISA and ask them what to do.    

isasmurf

Unless your cash ISA is flexible, then there is nothing you can do at this stage.  If your cash ISA is not flexible, withdrawing money from the ISA will not change your over subscription. 

You could inform your cash ISA provider but the guidance they are given is to do nothing as they do not have all the information and don't know what action HMRC will take. They are guided to advise you that HMRC may be in touch in due course. If HMRC do get in touch, it won't be until around this time next year at the earliest. 

Anecdotally, it has been suggested that HMRC will let you off first breaches with a warning or overlook them entirely but that can't be guaranteed. However, don't worry there are no fines for ISA breaches. Where a breach is found and acted on by HMRC, the invalid ISA (the one that took you over your allowance) will be treated as though it were not an ISA and be taxed as any 'normal' savings account. HMRC will then direct the provider to 'repair' the ISA and the 16K of the deposit that is within your 20k allowance will be an ISA again, with the 4K that took you over your allowance taken out and returned to you. Again, all this will happen no earlier than around a year or so from now. 

RobM99

It's not a  massive tax fraud, my guess is a "Don't be naughty!" waggy finger letter.

Oasis1

Thanks all. I've withdrawn the £4k from the cash ISA as I think it's flexible but will confirm with bank tomorrow.

You finally think you've understood ISAs and then bam, you make a mistake!

Albermarle

Basically do not do it again though.
As already said the golden rule is that the £20K limit on new contributions in tax year, is a maximum total across all ISA's

Oasis1

I forgot to update this - the ISA is flexible so hopefully withdrawing the £4k went some way in rectifying my mistake.

However, I did earn interest on it for approx 2 months - maybe totalling £20.

masonic

Oasis1 said:

However, I did earn interest on it for approx 2 months - maybe totalling £20.

This is unlikely to be of any consequence. The ISA manager will report the net amount subscribed (less flexible withdrawals) at the end of the tax year. They do not report the amount of tax free interest earned.