Metro Instant Access ISA. Am I breaking rules?

pecunianonolet

Hi,

Need something sense checked if it works and is legal or not.

Have a Shawbrook 1y fix ISA 4.21% maturing 25.04.24 so current tax year funds. For those not aware, a Shawbrook fix means you can make unlimited additions throughout the tax year up to the full 20k limit. In my case, I have not filled it fully up yet.

Metro Bank offers the Instant Access ISA at currently 5.11%

- The Metro ISA is flexible, so I can take funds out and replace during the tax year.
- Unlimited withdrawals
- Minimum opening amount is £500 to get the promotional rate

Now, I can only subscribe (pay in) to one ISA in this tax year. 

Idea:

1. Open Metro ISA
2. Pay in £500 on day of opening, promotional rate is applied the following working day
3. Withdraw £500 once promotional rate has been applied
4. Keep account untouched at £0 balance for the rest of the financial year (no further transactions until at least 6th April)
5. Fill up Shawbrook to the maximum 20k allowed
6. Make transfer once Shawbrook ISA matured

Note:

- T&C's do not mention any transfer window so assuming possible at any time as log as account is open, moneyfacts states 30 days from opening?
- No info on notice period for rate reductions

On 5th April, HMRC will get info that I have opened 2 ISAs under my national insurance number but only put 20k, my annual allowance, into one account. Since the Metro account is flexible, my £500 pay in for one day is basically invisible to HMRC, with the only exception that I get interest on the £500 for 1 day on the lower rate of 1.65%, which would amount to 2p interest.

When the Shawbrook ISA matures it is previous tax year money and I can transfer to Metro and benefit from the rate, unless lowered before or someone else has a more attractive rate by then.

Am I breaking the ISA rules by this procedure this year or would that be a way to secure a potentially high paying account now for next tax year?

Would HMRC make any trouble, since rules change next year anyway or would they be more lenient on it should it be bending rules?

P.S. My closest branch is 225 miles away but travelling south for business so could pop in somewhere to get it all done.

Hoenir

Metro may well decide to terminate their business relationship with you. Something which appears to have been done in a fraudulent manner isn't worth the time and trouble to investigate. 

pecunianonolet

Hoenir said:

Metro may well decide to terminate their business relationship with you. Something which appears to have been done in a fraudulent manner isn't worth the time and trouble to investigate. 

If it is not against the rules, it isn't fraud. If it is against ISA rules, it it is a done deal, obviously. Hence me asking the community to sense check it. 

dlevene

The metro ISA includes a bonus that goes after a year

refluxer

When you open the Metro ISA, you'll sign the usual ISA declaration which says something like...

"I have not subscribed and will not subscribe to another cash ISA in the same tax year that I subscribe to this cash ISA"

...so the moment you pay any money into it, you've broken that rule and made it a false declaration.

pecunianonolet

refluxer said:

When you open the Metro ISA, you'll sign the usual ISA declaration which says something like...

"I have not subscribed and will not subscribe to another cash ISA in the same tax year that I subscribe to this cash ISA"

...so the moment you pay any money into it, you've broken that rule and made it a false declaration.

But I theoretically have the option to open the Metro ISA, sign the declaration with the intent at time of opening to pay the Shawbrook penalty and initiate a transfer but may decide after opening against it, which would be a legitimate cause. The Metro account would sit there dormant, I could have forgotten to let them know to close it. Not the most believable story but by all means a possibility.

I would think I can open as many ISA's as I want and I always have to sign the declaration, I can only subscribe (pay in) to one and it's locked in 5th April 23:59. In my opinion, as long as I have not paid in more than 20k and not paid it into different accounts I can't see how I broke the rules but I am here as I want to understand if that is or isn't legal. 

I am not willing or planning to do anything illegal just to be crystal clear, but I want to understand the rules.


Let's take this to the extreme, what I for sure would say is tax fraud!

You open a flexible ISA account, with institute A, B, and C and they all pay you monthly interest and you sign the same agreement with each of them. Now you put 20k in each account. Each month you get paid interest on your 20k and it compounds as you keep it in. At the end of the tax year, say 1st April, you withdraw from bank A and B all funds including interest earned and the account is showing a NIL balance. The usual message you now see is "you can still add £xx to this account in tax year xx/xx" and that would jump back to the full 20k because you took the funds out. Bank A and B would now think you gave up your ISA allowance.

If I am not mistaken, ISA interest isn't reported to HMRC at all, bank A and B would only report perhaps the existence of the ISA and a NIL balance to HMRC. The subscription amount would be seen as 0

Bank C, however, would report the 20k subscription as the money is still in. Technically, in HMRC eyes you have only subscribed to one ISA with your 20k allowance in the given tax year. The interest earned isn't reported to HMRC so doesn't exist in HMRC eyes and you have earned illegally tax free interest on 40k and as it is never reported it never shows up or counts against any PSA, etc. 

Getting banned for life, charged with tax fraud by intentionally committing a crime and maybe going to prison are all on the table. 


https://www.gov.uk/guidance/bank-and-building-society-interest-returns#interest-you-do-not-need-to-include-on-a-return

Interest you do not need to include on a return

• on Individual Savings Accounts (ISAs) unless the ISA is invalid or repaired

With the fraudulent example above, only ISA with bank A would be valid, B and C would be deemed invalid and any profits made would be counted against the investors PSA. How B and C would find out it was an invalid subscription remains an open question to me, unless they would either exchange data between each other (unlikely) or any form of reporting to HMRC does happen so it can be traced back (likely).


https://www.gov.uk/guidance/close-void-or-repair-an-isa-if-youre-an-isa-manager

Interesting what is deemed as invalid and under what circumstances a repair is possible. 


Digging deeper also reveals a lot more to my initial question.

https://www.gov.uk/guidance/manage-isa-subscriptions-for-your-investors#flexible-isas
https://www.gov.uk/guidance/who-can-invest-in-an-isa-if-youre-an-isa-manager

The below seems to clarify the matter to my question, I think?

Part 1 says I can take current year money from a flexible cash ISA and move it without problem to e.g. a stocks & shares ISA

Part 2 says that if I open the Metro ISA and need to pay in £500 to get the promotional rate, I have made a subscription and that means I can withdraw the £500 again but my Shawbrook ISA would automatically default to now having only a total of 19.5k subscription left. However, they are both of the same type so I am in breach of the "one ISA of each type per tax year" rule.

Withdrawals of current year subscriptions, can effectively be replaced in any current year ISA, but cannot breach the ‘one ISA of each type per tax year’ rule.

Where a flexible ISA has current year subscriptions only, any withdrawals over and above the amount subscribed (for example, income or capital growth) can only be replaced in that ISA.

This leaves now only one option, I can only open ISA accounts which do not require any funding/subscription to open such as the Virgin Money ISA  because the T&C's say:

• There is no minimum amount required to open and maintain this account.

Therefore, the account is opened and remains at NIL balance and none of the below applies. 

You may find an ISA is invalid. Examples of invalid ISAs are the:

• investments held in the account are non-qualifying

• investor is not a qualifying individual

• subscription to the account is invalid

I really hope this is also of help to others :-)

dlevene

I do not think it's going to be helpful to anyone to be honest. 

Apart from anything else,  the flexible allowance is only retained with the provider you've withdrawn the money from, it's lost if and when you transfer out. 

I don't really know what you're trying to achieve here, and I'm not sure what view the admins will take of you posting advice you admit is fraudulent. 

Reed_Richards

Are you breaking ISA rules?  Undoubtedly, you would have to make a fraudulent declaration to open the Metro ISA (or would render the declaration false as soon as you deposit new money).

Might you get away with it?  Possibly.  It could be inconvenient if Metro go bust just when you want to get your money out.

refluxer

pecunianonolet said:

refluxer said:

When you open the Metro ISA, you'll sign the usual ISA declaration which says something like...

"I have not subscribed and will not subscribe to another cash ISA in the same tax year that I subscribe to this cash ISA"

...so the moment you pay any money into it, you've broken that rule and made it a false declaration.

But I theoretically have the option to open the Metro ISA, sign the declaration with the intent at time of opening to pay the Shawbrook penalty and initiate a transfer but may decide after opening against it, which would be a legitimate cause. The Metro account would sit there dormant, I could have forgotten to let them know to close it. Not the most believable story but by all means a possibility.

I would think I can open as many ISA's as I want and I always have to sign the declaration, I can only subscribe (pay in) to one and it's locked in 5th April 23:59. In my opinion, as long as I have not paid in more than 20k and not paid it into different accounts I can't see how I broke the rules but I am here as I want to understand if that is or isn't legal. 

I am not willing or planning to do anything illegal just to be crystal clear, but I want to understand the rules.

Yes, you haven't broken any ISA rules by simply opening the Metro ISA (plus others) - there is no limit to the number of ISAs that you can open. As I mentioned above, it's the moment you pay new subscriptions from the current tax year into a second cash ISA that you've broken current ISA rules* and broken the promise you made on that second ISA's declaration.

*It's worth noting that this rule changes next April because, after that, we will be able to pay into multiple cash ISAs within the same tax year.

pecunianonolet said:
This leaves now only one option, I can only open ISA accounts which do not require any funding/subscription to open such as the Virgin Money ISA  because the T&C's say:

• There is no minimum amount required to open and maintain this account.

Therefore, the account is opened and remains at NIL balance and none of the below applies. 

You may find an ISA is invalid. Examples of invalid ISAs are the:

• investments held in the account are non-qualifying

• investor is not a qualifying individual

• subscription to the account is invalid

Yes, if an ISA account doesn't have a minimum balance then there's nothing to stop you opening it and leaving it unfunded but why are you so keen to open the ISAs you're talking about so far in advance ? These are easy access, variable rate accounts so you're not securing a good rate like you would be if the rate was fixed - whatever rate these ISAs are at next April, it's highly likely that you'll be able to get the same rate by applying nearer the time. In fact, there's a good chance that you'll be able to get a better rate by looking elsewhere, because you won't be limited to ISAs that don't have a minimum balance like you are if you open one now and leave it unfunded.      

pecunianonolet

dlevene said:

I do not think it's going to be helpful to anyone to be honest. 

Apart from anything else,  the flexible allowance is only retained with the provider you've withdrawn the money from, it's lost if and when you transfer out. 

I don't really know what you're trying to achieve here, and I'm not sure what view the admins will take of you posting advice you admit is fraudulent. 

Maybe you should read it again. I am not sure why admins would be in any way interested, the contrary, I am seeking advice to avoid doing anything incorrect. 

My assumption was that I can subscribe my 20k allowance with different flexible ISAs but as long as 20k are only paid in with one provider by the cu off on 5th April 23:59 I am fine. As stated above, you can subscribe and split your 20k with different ISA types but you can't with the same type as when you withdraw from a flexible ISA you can only replenish funds in the same account. The only way to move funds is by transfer as the ISA manager of the existing funds communicated the subscription already made to the next. You can always ditch and switch.

Luckily, it will all be easy and different from next year, perhaps government has seen many invalid ISA accounts as people not understand the rules, ending up breaking agreements because they are getting confused.

My aim was to secure a good account, as I am not expecting any easy access ISA accounts with 5.x% to be available by April, I even expect that a first rate cut could be happening by then. Rates on existing accounts are usually honoured much longer.  

masonic

The annual returns submitted by ISA managers contain enough information to determine that a flexible cash ISA was subscribed to and then flexibly withdrawn to zero. Whether HMRC would mine that information, or if they did, whether they would care, is a matter for speculation. Some have broken the rules more substantially and not yet heard anything about it several tax years later.