Flexible ISA Rule changes

[Deleted User]

Hi there,

After the turn of the tax year I subscribed to a flexible cash ISA for a brief period whilst I worked out what to do investment wise. I then withdrew the funds and invested them in another S&S ISA. I was of the understanding that current year subscriptions to a flexible ISA could be withdrawn and replaced in another so I did not need to consider the subscriptions. I figured this was easier than transferring and it allowed me to leave a bit behind as the broker didn't support partial transfers. There was nothing online to indicate there would be a problem with this at the time. Indeed, the Cash ISA itself has actually subbed off the subscriptions from the total.

Now I have read that the rules changed on April 6th but these were only publicised on April 30th.

Fortunately this was only for around 1/4 of my ISA allowance but I have also made other subscriptions and plan to make more, so I am wondering whether I will effectively account for these values twice to ensure I do not go over £20,000.

So to summarise, will I need to include the £4000 twice in my ISA spreadsheet, have I effectively burned £4000 of my ISA limit due to HMRC not updating their guidance?

eskbanker

Given the unusual circumstances of the rules changing during the tax year, without advance notification, I don't think anyone knows yet how HMRC will deal with this, but I'd argue that those who inadvertently broke unpublished rules should have a reasonably strong case that their actions should be judged according to the rules as published at the time!

[Deleted User]

eskbanker said:

Given the unusual circumstances of the rules changing during the tax year, without advance notification, I don't think anyone knows yet how HMRC will deal with this, but I'd argue that those who inadvertently broke unpublished rules should have a reasonably strong case that their actions should be judged according to the rules as published at the time!

Noted, what I find a little unfair though is that my understanding is that transgressions of the limit are only picked up on at the end of the tax year. In my position, I am unlikely to go and knowingly contribute more than 20k now (assuming the first 4k into the Cash ISA counts) given I know what I know. I wouldn't really want to have to argue my case, the whole point of ISA's are to avoid declaring things and so on!

I can safely say I would never have spotted this change if it weren't for forums, individuals shouldn't really be ending up in this position...

I wish there was some way of seeing your ISA subscriptions in a centralised place during the tax year, especially now that they have opened things up to multiple providers. There is a margin for error when maintaining this on your own spreadsheet.

Perhaps it is my fault for trying to be clever whilst I decided what to do, after all it only accounted for a small sum in interest. I suppose I just add the 4k to my spreadsheet and consider that part subscribed. I could go to that bank and ask what they will report, but I doubt a customer service agent is going to be abreast of these changes! The HMRC forum could be another option 

 A pain for those who applied a similar approach but maxed out the Cash ISA.

schiff

The secret surely is to avoid the margin of error. It can't be that difficult to keep an up to date record, it's not like a current account with multiple transactions.

[Deleted User]

schiff said:

The secret surely is to avoid the margin of error. It can't be that difficult to keep an up to date record, it's not like a current account with multiple transactions.

Funnily enough, I just exported my current account transactions to make a log of any payments to ISA providers this year. There have been a few transactions across a few providers, in future I will keep it more simple.

I included the £4000.00 to the flexible ISA contribution in this, so will be assuming this amount of my ISA allowance has been wasted unless I hear otherwise.

qbadger

... Is there a reason why you can't just replace the amount that's been withdrawn from the cash ISA, then request a full ISA transfer out to whichever account you plan to add this year's subscription to?

jimjames

schiff said:

The secret surely is to avoid the margin of error. It can't be that difficult to keep an up to date record, it's not like a current account with multiple transactions.

It's not a margin of error, it's the fact that HMRC changed the goalposts after the start of the tax year so actions that were in line with the rules last year are no longer so. If you'd paid into an ISA and then withdrawn the money to pay in elsewhere because that was permitted it's not really fair that they decide after the event that it isn't.

jimjames

qbadger said:

... Is there a reason why you can't just replace the amount that's been withdrawn from the cash ISA, then request a full ISA transfer out to whichever account you plan to add this year's subscription to?

In my case I'd already paid it back into another ISA which was permitted last year.

slinger2

qbadger said:

... Is there a reason why you can't just replace the amount that's been withdrawn from the cash ISA, then request a full ISA transfer out to whichever account you plan to add this year's subscription to?

The withdrawn money is this year's money.

If your total subscriptions are less than £20k then what you say would be possible. However suppose you opened a flexible Cash ISA with £20k of new money, then withdrew £5k and moved it into another ISA. If you replace the £5k you've now subscribed £25k of this year's money.

masonic

qbadger's suggestion would work for the OP's predicament, so would be a way of remaining compliant with the new rule. Others won't have this luxury of course.

qbadger

My point is that if your concern is about having inadvertently wasted some of this year's ISA subscription allowance, why not consider the "replace and transfer out" option as a fix? Unless of course you have already used your annual subscription in full elsewhere and this would take you over the £20k limit.