Accidentally exceeded ISA limit and can't get through to HMRC for advice

CarolineSunset2022

I stupidly didn't realise that the maximum 4k annual contributions to a Lifetime ISA is part of and not additional to the 20k maximum annual contribution to a cash ISA. I moved my life savings of £20k over to a cash ISA from a normal savings account in late October and later paid £4k into my lifetime ISA with a different provider not realising this took me over the limit. Now I have realised the mistake I tried contacting my cash ISA provider to see if they can rectify it by removing £4k back to my current account but they said it was best to contact HMRC for advice. I am really worried that as the overpayment was to my Lifetime ISA HMRC will 'fix' this by taking the money out of my Lifetime ISA at the end of the financial year but this would both incur a 25% charge and mean I don't get my 25% bonus which for this financial year which equates to £1000. As the overpayment of my allowance happened in the past couple of weeks and no interest has been paid since I was hoping I could get HRMC to advise on how to fix it and the quick turnaround would mean no harm done. I have tried calling HMRC five times today and the first time I spoke to an advisor who didn't know what an ISA allowance was and then put the phone down on me. The other four times I've just been cut off automatically after going through the full menu. I'm worried that leaving it until HMRC contact me at the end of the financial year means it will be a much bigger mess to sort out and because I can't get through on phone and there is no online contact form I have no proof that it was an honest mistake I have been trying my best to resolve. 

Does anyone have any advice on what I can do? Has anyone done anything similar?

Thank you! 

dunstonh

Does anyone have any advice on what I can do?

You do nothing.    In the vast majority of cases, in around 18-24 months you will get a letter from HMRC telling you that you exceeded the allowance and not to do it again but they will let you off on this occasion.   It's known as the get-of-jail-free card that each NI number has with ISAs.   However, that is not an automatic opportunity to fill your boots as with larger errors, they have been known to tell the second ISA provider in that year to void the ISA status and convert it to unwrapped (or in the cash of cash ISAs, treat it as if its taxable interest).   

kuratowski

Is the Cash ISA a "flexible ISA"*?  If it is flexible, then you can remove £4k from current year subscriptions and it will be as if you never paid it in.  However, if the Cash ISA isn't flexible, this would not work, and it would be better to do nothing.

*If it is flexible, the terms & conditions of the account will state that.

CarolineSunset2022

dunstonh said:

Does anyone have any advice on what I can do?

You do nothing.    In the vast majority of cases, in around 18-24 months you will get a letter from HMRC telling you that you exceeded the allowance and not to do it again but they will let you off on this occasion.   It's known as the get-of-jail-free card that each NI number has with ISAs.   However, that is not an automatic opportunity to fill your boots as with larger errors, they have been known to tell the second ISA provider in that year to void the ISA status and convert it to unwrapped (or in the cash of cash ISAs, treat it as if its taxable interest).   

That makes sense but in this case the second ISA provider is a lifetime ISA and therefore if they void the ISA status from that account I will surely lose the £1000 government bonus that comes with the £4000 paid into the lifetime ISA? Is there any point in removing £4k from my cash ISA back to my current account? Or is there a way to make sure that if HRMC ask the ISA provider to void the ISA status they do this to the cash ISA rather than the Lifetime ISA? Will it be seen positively that I have tried to rectify the issue as quickly as possible if I remove the £4000 which is over the allowance from my cash ISA back into a normal account?

dunstonh

 Is there any point in removing £4k from my cash ISA back to my current account?

If it is a flexible ISA, then its probably better to do so as the ISA provider reports the net allowance used.  It will ensure that its a minor error and may not even make HMRCs radar.

CarolineSunset2022

kuratowski said:

Is the Cash ISA a "flexible ISA"*?  If it is flexible, then you can remove £4k from current year subscriptions and it will be as if you never paid it in.  However, if the Cash ISA isn't flexible, this would not work, and it would be better to do nothing.

*If it is flexible, the terms & conditions of the account will state that.

I've just checked and it is! I've removed the £4k from my Cash ISA to my current account and hoping that HRMC will now forgive the few weeks where I was over my allowance as it was a genuine mistake which I rectified as soon as I realised.

masonic

CarolineSunset2022 said:

kuratowski said:

Is the Cash ISA a "flexible ISA"*?  If it is flexible, then you can remove £4k from current year subscriptions and it will be as if you never paid it in.  However, if the Cash ISA isn't flexible, this would not work, and it would be better to do nothing.

*If it is flexible, the terms & conditions of the account will state that.

I've just checked and it is! I've removed the £4k from my Cash ISA to my current account and hoping that HRMC will now forgive the few weeks where I was over my allowance as it was a genuine mistake which I rectified as soon as I realised.

Your ISA provider will only make a routine report to HMRC of the end of the tax year position, so you should be fine.

steviep43

I've done exactly the same as the OP - paid in just over £19k to a cash ISA in one go this FY (not flexible), but carried on paying monthly into my LISA, not realising the £20k allowance is split over both. I realised after paying in over £2,600 this tax year so it's not the full £4k. Nutmeg who I have my LISA with said they can't do anything and to contact HMRC. I've just phoned them and they couldn't help (to be frank they weren't much help - I had to explain a LISA and Lifetime Individual Savings Account are the same thing!). She said to wait until they contact me after the end of the financial year, but have put a note on my account that it was a genuine mistake.

So I suppose I just have to wait until (if) I get a letter saying I owe them. I'll have to make sure I have enough money to pay them the extra tax and possibly the LISA Government bonus post-the £20k allowance was reached - which this FY my calculations make it about £460.

If anyone has been through a similar situation it would be good to hear whether they had to pay back the Government bonus at the 25% rate (which is what you get stung for if taking it out before maturity) or just the bonus they received. Thanks