Corporate Action in LISA

eskbanker

mdonaldo said:

But it also seems unlikely to me that the government wants to read negative headlines about innocent LISA investors being penalised on a technicality. 

Given the amount of coverage of Martin Lewis's unsuccessful attempts to get them to change the LISA rules to increase the £450K property price cap and/or remove the effective 6.25% penalty for non-qualifying withdrawals, I strongly suspect that the government won't be in the slightest bit bothered about any publicity arising from an even rarer niche edge case, and likewise the press and media are unlikely to see this as anything worthy of headlines in the first place!

masonic

mdonaldo said:

Masonic that's a fair point and you may well be right. But it also seems unlikely to me that the government wants to read negative headlines about innocent LISA investors being penalised on a technicality. 
I haven't yet found a concrete answer to the question. It must be relatively common as it affects stocks and shares ISAs, too. If an investment becomes non-qualifying and it's transferred out then does that reduce your allowance if your S&S ISA is non-flexible? Nobody is providing an answer which may be because it's not clear cut. The OP is probably better-off selling given the lack of clarity. 

The situation has cropped up a few times for S&S ISAs and the investor can choose to do a reverse Bed & ISA or sell and reinvest in something else within the ISA. There have been a few threads in the past where people have had to deal with this. Only those who ignore the corporate action and follow-up communications from their provider would see holdings removed with loss of ISA status, and they would not be granted any additional ISA allowance.

The difference with a LISA is the withdrawal penalty. The legislation is insufficiently clear on this scenario, as it probably wasn't considered. So it would be down to HMRC's interpretation of the spirit of the rules. They haven't covered it in their guidance documents, but I think it is likely they have come across this before now.

It didn't help that AJ Bell didn't word their communication to the OP sufficiently clearly, but given there may be an option to respond to the corporate action requesting cash instead of shares, this could be the ideal option in these circumstances. Otherwise selling this side of the transaction seems preferable to waiting for the new shares.

qbadger

AJ Bell hasn't yet responded to my questions, but I have sold my position today so it's now purely of academic interest.

As they say, life's too short.

masonic

Monevator seems to agree with your course of action: https://monevator.com/etf-delisting/