Messed up my ISA allowances

aroominyork

So, after posting on another thread, I realise I have messed up. I thought I could put £20k into a cash ISA and £20k into an S&S ISA, when actually the total between the two cannot exceed £20k. What is the best way to fix this? Is it to quickly pull £20k out of the cash ISA, and if so what are the reporting/tax implications of this?

eskbanker

Is either of them still within its initial cooling-off period, or is either a flexible ISA?

aroominyork

Both outside cooling off. Cash is in a flexible ISA.

eskbanker

aroominyork said:

Both outside cooling off. Cash is in a flexible ISA.

In which case, you can simply withdraw the £20K from the flexible cash ISA and all is good again.

aroominyork

From your money.com: “If you realise you’ve done this then you shouldn’t attempt to just withdraw money from one ISA yourself. Instead you should call HMRC’s ISA helpline on 0300 200 3300 to explain the situation. HMRC will work out which ISA had the payment into it that breached the limit and will reclaim the money. They will also charge you for any tax owed.” Are you sure I should ignore that and just withdraw the cash?

jimjames

aroominyork said:

From your money.com: “If you realise you’ve done this then you shouldn’t attempt to just withdraw money from one ISA yourself. Instead you should call HMRC’s ISA helpline on 0300 200 3300 to explain the situation. HMRC will work out which ISA had the payment into it that breached the limit and will reclaim the money. They will also charge you for any tax owed.” Are you sure I should ignore that and just withdraw the cash?

Yes, that doesn't take account of the flexible ISA rules. You can pay money into and remove from a flexible ISA over the year and it won't affect your total allowance as long as the balance is £20k or under at the end of the tax year. 

Money_Grabber13579

jimjames said:

aroominyork said:

From your money.com: “If you realise you’ve done this then you shouldn’t attempt to just withdraw money from one ISA yourself. Instead you should call HMRC’s ISA helpline on 0300 200 3300 to explain the situation. HMRC will work out which ISA had the payment into it that breached the limit and will reclaim the money. They will also charge you for any tax owed.” Are you sure I should ignore that and just withdraw the cash?

Yes, that doesn't take account of the flexible ISA rules. You can pay money into and remove from a flexible ISA over the year and it won't affect your total allowance as long as the balance is £20k or under at the end of the tax year. 

Is that not open to abuse? Presumably if someone had £200k to invest, they couldn’t open 10 flexible isas, deposit £20k in each on 6th April and then fully withdraw the funds from 9 of them the following 5th April? Is the case that the interest on the additional isas gets taxed and if so, how does that get picked up?

wmb194

jimjames said:

aroominyork said:

From your money.com: “If you realise you’ve done this then you shouldn’t attempt to just withdraw money from one ISA yourself. Instead you should call HMRC’s ISA helpline on 0300 200 3300 to explain the situation. HMRC will work out which ISA had the payment into it that breached the limit and will reclaim the money. They will also charge you for any tax owed.” Are you sure I should ignore that and just withdraw the cash?

Yes, that doesn't take account of the flexible ISA rules. You can pay money into and remove from a flexible ISA over the year and it won't affect your total allowance as long as the balance is £20k or under at the end of the tax year. 

This makes it sound like it could be left there until the end of the tax year. Could it?

aroominyork

jimjames said:

aroominyork said:

From your money.com: “If you realise you’ve done this then you shouldn’t attempt to just withdraw money from one ISA yourself. Instead you should call HMRC’s ISA helpline on 0300 200 3300 to explain the situation. HMRC will work out which ISA had the payment into it that breached the limit and will reclaim the money. They will also charge you for any tax owed.” Are you sure I should ignore that and just withdraw the cash?

Yes, that doesn't take account of the flexible ISA rules. You can pay money into and remove from a flexible ISA over the year and it won't affect your total allowance as long as the balance is £20k or under at the end of the tax year. 

Why is this about a flexible ISA rather than an instant access ISA? Flexible means you can withdraw then redeposit cash - all we are concerned with here is withdrawing.

isasmurf

aroominyork said:

jimjames said:

aroominyork said:

From your money.com: “If you realise you’ve done this then you shouldn’t attempt to just withdraw money from one ISA yourself. Instead you should call HMRC’s ISA helpline on 0300 200 3300 to explain the situation. HMRC will work out which ISA had the payment into it that breached the limit and will reclaim the money. They will also charge you for any tax owed.” Are you sure I should ignore that and just withdraw the cash?

Yes, that doesn't take account of the flexible ISA rules. You can pay money into and remove from a flexible ISA over the year and it won't affect your total allowance as long as the balance is £20k or under at the end of the tax year. 

Why is this about a flexible ISA rather than an instant access ISA? Flexible means you can withdraw then redeposit cash - all we are concerned with here is withdrawing.

In a flexible ISA when you withdraw it gets added back to your unused allowance.

If an account has £20,000 deposited and £7,000 withdrawn then what is reported to HMRC for allowance used at the end of the tax year is different depending on flexibility.
For a flexible ISA it will be £13,000
For a Non-flexible isa it will be £20,000.

This is why, if the ISA isn't flexible, the advice is not to try to correct an error yourself as you may be making things worse. 

aroominyork

isasmurf said:

aroominyork said:

jimjames said:

aroominyork said:

From your money.com: “If you realise you’ve done this then you shouldn’t attempt to just withdraw money from one ISA yourself. Instead you should call HMRC’s ISA helpline on 0300 200 3300 to explain the situation. HMRC will work out which ISA had the payment into it that breached the limit and will reclaim the money. They will also charge you for any tax owed.” Are you sure I should ignore that and just withdraw the cash?

Yes, that doesn't take account of the flexible ISA rules. You can pay money into and remove from a flexible ISA over the year and it won't affect your total allowance as long as the balance is £20k or under at the end of the tax year. 

Why is this about a flexible ISA rather than an instant access ISA? Flexible means you can withdraw then redeposit cash - all we are concerned with here is withdrawing.

In a flexible ISA when you withdraw it gets added back to your unused allowance.

If an account has £20,000 deposited and £7,000 withdrawn then what is reported to HMRC for allowance used at the end of the tax year is different depending on flexibility.
For a flexible ISA it will be £13,000
For a Non-flexible isa it will be £20,000.

This is why, if the ISA isn't flexible, the advice is not to try to correct an error yourself as you may be making things worse. 

Thanks. I assume I should declare the ISA interest on self assessment as taxable interest?