Accidentally subscribed to two cash ISAs ..... (yes I know the rules!)

steveksullivan

Logged into my current account today to see a shock large amount in there from Virgin!

Bl@@dy annoyed because I know the rules and am so careful, but ....

Last tax year (June) opened a cash ISA with Virgin  - in my mind, to transfer two large maturing ISAs from previous years, but must have had a spare bit of cash and added circa 2K to it ....

Later (October) opened new cash ISA (also with Virgin) for that years subscription and FULLY funded it (20k), forgetting the 2k earlier in the year...

Yesterday Virgin spotted it and closed the second account and transferred funds back to me .... so lost ISA status!

Phoned HMRC immediately to try to pay any outstanding tax, and obviously got the 'trainee' . The only ISA rule he seemed to know were that ISAs are tax free !  - I ended up talking him through the rules! He then went off to talk to his 'technical' people and came back and told me to do nothing - they will pick it up at the end of the tax year.

I was expecting to pay tax on all the interest earned on the second ISA to date as it was opened 'against the rules', but have just read that on the tinterweb an advisor saying they will just calculate tax on the amount over the 20k limit.

Does any one know FOR SURE which applies?

Thanks as always .....

dunstonh

Yesterday Virgin spotted it and closed the second account and transferred funds back to me .... so lost ISA status!

You were probably better off not doing that.

Phoned HMRC immediately to try to pay any outstanding tax, and obviously got the 'trainee' . The only ISA rule he seemed to know were that ISAs are tax free !  - I ended up talking him through the rules! He then went off to talk to his 'technical' people and came back and told me to do nothing - they will pick it up at the end of the tax year.

HMRC normally contact people about 18 months after the end of the tax year where rules have been broken.   In the majority of cases, your NI number is allowed one error with ISAs.    So, you effectively get a get-out-of-jail-free card.

i.e. they would let you get away with it but warn you not to do it again.

I was expecting to pay tax on all the interest earned on the second ISA to date as it was opened 'against the rules', but have just read that on the tinterweb an advisor saying they will just calculate tax on the amount over the 20k limit.

I have never seen that method used.

Usually, in cases where amounts are larger, they ask the provider to void the second ISA and treat it it as if it was non-ISA (on the whole amount).

Does any one know FOR SURE which applies?Most likely action is that you will still get your warning letter to not do it again but they wont take any action on this occasion.  Unfortunately, they won't know that you closed the second ISA.   

steveksullivan

Hi @dunstonh ....nice to see you again - haven't 'spoken' in a long time!

It wasn't me that closed the ISA..... as I said, Virgin spotted it and closed it. Apparently they have also sent me a letter, but I phoned them this morning when I saw the funds hit my current account.

You say 'Usually, in cases where amounts are larger, they ask the provider to void the second ISA and treat it it as if it was non-ISA (on the whole amount).'

..... but they have already closed it and paid closing interest.

Guess I'll just wait and see then, but it sounds like you are agreeing with me and all the interest will be taxable.

(I've got full records of my phonecall to HMRC this morning so they know I tried to contact them ...... )

Exodi

steveksullivan said:

Phoned HMRC immediately to try to pay any outstanding tax, and obviously got the 'trainee'

To be fair, I do think you calling up HMRC to immediately pay the tax on the interest was a strange thing to do.

Banks notify HMRC of interest paid on accounts, who will then calculate any tax payable and apply a tax code change (if necessary).

If you do not do a Self Assessment Tax Return, as most don't, you can just sit on your hands like everyone else when interest is paid on non-ISA accounts.

steveksullivan

Exodi said:

steveksullivan said:

Phoned HMRC immediately to try to pay any outstanding tax, and obviously got the 'trainee'

To be fair, I do think you calling up HMRC to immediately pay the tax on the interest was a strange thing to do.

@Exodi This is a quote from a finance website on the subject (admittedly old.... but I have seen the advice to contact HMRC on other websites too....)

Quote: 

If you have mistakenly contributed to two cash Isa accounts, don't worry, it's easily resolved.

I asked Patrick O'Brien, of HMRC, what the best course of action is.He says: 'You should not try to correct this mistake yourself. Instead, you should call the Isa Helpline on 0845 604 1701 and explain the problem to them. They will advise you what action you need to take.'