Flexible cash ISAs

eskbanker

AmityNeon said:

As long as the £20,000 limit is never breached at any point in the year, I don't see HMRC making more work for themselves by kicking up a fuss just because funds withdrawn from one flexible ISA weren't replaced in the same ISA. It's unnecessary administration for all parties involved and currently an utter mess from its introduction to the inconsistent application across different providers, so I'm just going to ignore the rules this tax year, make false ISA declarations if necessary and see how I'm punished later.

Are you saying that you made a replacement subscription to a different ISA early in the tax year (the rule changed after a few weeks as I recall), or that you're planning to do so even after the change?  It would seem unreasonable for there to be any penalising of the former but the latter may be harder to justify, albeit not impossible in some circumstances....

masonic

I've found nothing to suggest they are improving the annual reporting to gather high water mark information that would enable them to spot this, and they are probably already out of time to have this up and running for the next set of ISA returns. As I understand it, the measure was put in place as a knee-jerk reaction to concerns being raised that people would open and subscribe to multiple flexible ISAs up to the limit, then reduce them to within the limit just before year end. If you never exceed the annual allowance, then the breach is a minor one, like the former "invalid combination of ISAs", and I suspect it would be dealt with in a similar manner if detected.

AmityNeon

eskbanker said:

AmityNeon said:

As long as the £20,000 limit is never breached at any point in the year, I don't see HMRC making more work for themselves by kicking up a fuss just because funds withdrawn from one flexible ISA weren't replaced in the same ISA. It's unnecessary administration for all parties involved and currently an utter mess from its introduction to the inconsistent application across different providers, so I'm just going to ignore the rules this tax year, make false ISA declarations if necessary and see how I'm punished later.

Are you saying that you made a replacement subscription to a different ISA early in the tax year (the rule changed after a few weeks as I recall), or that you're planning to do so even after the change? It would seem unreasonable for there to be any penalising of the former but the latter may be harder to justify, albeit not impossible in some circumstances....

That depends how a "replacement subscription" is strictly defined. I've certainly withdrawn funds from one flexible ISA, and subsequently deposited funds in a different flexible ISA (amongst other accounts, e.g. regular savers, easy access accounts and other non-flexible ISAs).

masonic

AmityNeon said:

eskbanker said:

AmityNeon said:

As long as the £20,000 limit is never breached at any point in the year, I don't see HMRC making more work for themselves by kicking up a fuss just because funds withdrawn from one flexible ISA weren't replaced in the same ISA. It's unnecessary administration for all parties involved and currently an utter mess from its introduction to the inconsistent application across different providers, so I'm just going to ignore the rules this tax year, make false ISA declarations if necessary and see how I'm punished later.

Are you saying that you made a replacement subscription to a different ISA early in the tax year (the rule changed after a few weeks as I recall), or that you're planning to do so even after the change? It would seem unreasonable for there to be any penalising of the former but the latter may be harder to justify, albeit not impossible in some circumstances....

That depends how a "replacement subscription" is strictly defined. I've certainly withdrawn funds from one flexible ISA, and subsequently deposited funds in a different flexible ISA (amongst other accounts, e.g. regular savers, easy access accounts and other non-flexible ISAs).

This is only an issue if the total you have subscribed (including money you have moved from one ISA to a different ISA as a subscription) exceeds £20k.

eskbanker

AmityNeon said:

That depends how a "replacement subscription" is strictly defined.

Looks like a typically circular definition!

The terms and conditions of an account (other than a junior ISA account or a Lifetime ISA) (“flexible account”) may provide for an account investor to be able to replace (in whole or part) a cash amount withdrawn by the account investor in any year by a replacement subscription of a cash amount or qualifying investments for a stocks and shares component within regulation 7(2)(h) (“replacement subscription”) made in that year.

https://www.legislation.gov.uk/uksi/1998/1870/regulation/5DDB

This year's change amended paragraphs 2 and 3 of this section from:

(2) Subject to regulation 4(1B)(a), (b), (ba) and (bb), a replacement subscription in respect of a subscription counting towards the limit in regulation 4ZA(1) may be made into any account of the account investor.

(3) Any other replacement subscription may be made only to the account from which the withdrawal of a cash amount it is replacing was made.

to:

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) Any replacement subscription may be made only to the account from which the withdrawal of a cash amount it is replacing was made.

AmityNeon

masonic said:

AmityNeon said:

eskbanker said:

AmityNeon said:

As long as the £20,000 limit is never breached at any point in the year, I don't see HMRC making more work for themselves by kicking up a fuss just because funds withdrawn from one flexible ISA weren't replaced in the same ISA. It's unnecessary administration for all parties involved and currently an utter mess from its introduction to the inconsistent application across different providers, so I'm just going to ignore the rules this tax year, make false ISA declarations if necessary and see how I'm punished later.

Are you saying that you made a replacement subscription to a different ISA early in the tax year (the rule changed after a few weeks as I recall), or that you're planning to do so even after the change? It would seem unreasonable for there to be any penalising of the former but the latter may be harder to justify, albeit not impossible in some circumstances....

That depends how a "replacement subscription" is strictly defined. I've certainly withdrawn funds from one flexible ISA, and subsequently deposited funds in a different flexible ISA (amongst other accounts, e.g. regular savers, easy access accounts and other non-flexible ISAs).

This is only an issue if the total you have subscribed (including money you have moved from one ISA to a different ISA as a subscription) exceeds £20k.

Exactly, hence why I've ignored this new hastily-introduced replacement rule because it's ludicrous taken at face value. Admittedly, I haven't cared to investigate whether there are qualifiers or exceptions. I also don't "move" money from one ISA to another; once money has been withdrawn, that's it — it becomes diluted into the general pool of accessible cash. What I do is keep track of subscription totals for each ISA (not just their current balances) and ensure that the combined ISA total doesn't exceed £20K. I'd probably initiate transfer procedures if one ISA needed a higher allowance but it's not a consideration with which I need concern myself at this moment in time, or this tax year.

masonic

AmityNeon said:

masonic said:

AmityNeon said:

eskbanker said:

AmityNeon said:

As long as the £20,000 limit is never breached at any point in the year, I don't see HMRC making more work for themselves by kicking up a fuss just because funds withdrawn from one flexible ISA weren't replaced in the same ISA. It's unnecessary administration for all parties involved and currently an utter mess from its introduction to the inconsistent application across different providers, so I'm just going to ignore the rules this tax year, make false ISA declarations if necessary and see how I'm punished later.

Are you saying that you made a replacement subscription to a different ISA early in the tax year (the rule changed after a few weeks as I recall), or that you're planning to do so even after the change? It would seem unreasonable for there to be any penalising of the former but the latter may be harder to justify, albeit not impossible in some circumstances....

That depends how a "replacement subscription" is strictly defined. I've certainly withdrawn funds from one flexible ISA, and subsequently deposited funds in a different flexible ISA (amongst other accounts, e.g. regular savers, easy access accounts and other non-flexible ISAs).

This is only an issue if the total you have subscribed (including money you have moved from one ISA to a different ISA as a subscription) exceeds £20k.

Exactly, hence why I've ignored this new hastily-introduced replacement rule because it's ludicrous taken at face value. Admittedly, I haven't cared to investigate whether there are qualifiers or exceptions. I also don't "move" money from one ISA to another; once money has been withdrawn, that's it — it becomes diluted into the general pool of accessible cash. What I do is keep track of subscription totals for each ISA (not just their current balances) and ensure that the combined ISA total doesn't exceed £20K. I'd probably initiate transfer procedures if one ISA needed a higher allowance but it's not a consideration with which I need concern myself at this moment in time, or this tax year.

The change has had the effect of making flexible ISAs somewhat more like non-flexible ISAs. So if you pay £20k into flexible ISA A, withdraw £10k and then later pay £10k into ISA B, you have breached the allowance by £10k. What provider A should be doing is listing the total subscriptions as £20k throughout, but separately listing a flexible allowance of £10k after the flexible withdrawal, as that can be repaid into that ISA and that ISA alone during the same tax year. They should then be reporting £20k subscriptions used to HMRC whether or not the £10k is replaced. While provider B would report £10k allowance used as it always would. This would prevent someone opening ISAs A, B, C, D, and paying £20k into each, withdrawing £15k from each just before the end of the tax year to avoid detection.

We do not yet know whether or not this will happen in practice (I suspect not).

eskbanker

eskbanker said:

surreysaver said:

They shouldn't change the rules part way through a tax year.

Many/most will share your opinion about changing rules during the year, but they unquestionably have done that

AmityNeon said:
I've ignored this new hastily-introduced replacement rule because it's ludicrous taken at face value

Looking at The Individual Savings Account (Amendment) Regulations 2024, these largely implemented the decisions taken in the 2023 budget, but the erosion of flexibility wasn't announced at that stage, which may explain why the change didn't feature in HMRC guidance documents published at the start of the tax year.

However, strictly speaking, the flexibility rules did change as from 6 April by virtue of that statutory instrument passing into law, even though (unsurprisingly!) nobody picked up on it, in the absence of any update to the HMRC guidance until 30 April.

So to me, this effectively implies that HMRC hadn't even noticed the new rules themselves, so it would be harsh for them to penalise those who breach them!

AmityNeon

masonic said:

AmityNeon said:

masonic said:

AmityNeon said:

eskbanker said:

AmityNeon said:

As long as the £20,000 limit is never breached at any point in the year, I don't see HMRC making more work for themselves by kicking up a fuss just because funds withdrawn from one flexible ISA weren't replaced in the same ISA. It's unnecessary administration for all parties involved and currently an utter mess from its introduction to the inconsistent application across different providers, so I'm just going to ignore the rules this tax year, make false ISA declarations if necessary and see how I'm punished later.

Are you saying that you made a replacement subscription to a different ISA early in the tax year (the rule changed after a few weeks as I recall), or that you're planning to do so even after the change? It would seem unreasonable for there to be any penalising of the former but the latter may be harder to justify, albeit not impossible in some circumstances....

That depends how a "replacement subscription" is strictly defined. I've certainly withdrawn funds from one flexible ISA, and subsequently deposited funds in a different flexible ISA (amongst other accounts, e.g. regular savers, easy access accounts and other non-flexible ISAs).

This is only an issue if the total you have subscribed (including money you have moved from one ISA to a different ISA as a subscription) exceeds £20k.

Exactly, hence why I've ignored this new hastily-introduced replacement rule because it's ludicrous taken at face value. Admittedly, I haven't cared to investigate whether there are qualifiers or exceptions. I also don't "move" money from one ISA to another; once money has been withdrawn, that's it — it becomes diluted into the general pool of accessible cash. What I do is keep track of subscription totals for each ISA (not just their current balances) and ensure that the combined ISA total doesn't exceed £20K. I'd probably initiate transfer procedures if one ISA needed a higher allowance but it's not a consideration with which I need concern myself at this moment in time, or this tax year.

The change has had the effect of making flexible ISAs somewhat more like non-flexible ISAs. So if you pay £20k into flexible ISA A, withdraw £10k and then later pay £10k into ISA B, you have breached the allowance by £10k. What provider A should be doing is listing the total subscriptions as £20k throughout, but separately listing a flexible allowance of £10k after the flexible withdrawal, as that can be repaid into that ISA and that ISA alone during the same tax year. They should then be reporting £20k subscriptions used to HMRC whether or not the £10k is replaced. While provider B would report £10k allowance used as it always would. This would prevent someone opening ISAs A, B, C, D, and paying £20k into each, withdrawing £15k from each just before the end of the tax year to avoid detection.

We do not yet know whether or not this will happen in practice (I suspect not).

Providers should just report full daily subscription histories for all ISAs so HMRC can automatically compute whether the annual allowance was ever breached at any point in the tax year, but that's probably asking for too much.

masonic

AmityNeon said:

masonic said:

AmityNeon said:

masonic said:

AmityNeon said:

eskbanker said:

AmityNeon said:

As long as the £20,000 limit is never breached at any point in the year, I don't see HMRC making more work for themselves by kicking up a fuss just because funds withdrawn from one flexible ISA weren't replaced in the same ISA. It's unnecessary administration for all parties involved and currently an utter mess from its introduction to the inconsistent application across different providers, so I'm just going to ignore the rules this tax year, make false ISA declarations if necessary and see how I'm punished later.

Are you saying that you made a replacement subscription to a different ISA early in the tax year (the rule changed after a few weeks as I recall), or that you're planning to do so even after the change? It would seem unreasonable for there to be any penalising of the former but the latter may be harder to justify, albeit not impossible in some circumstances....

That depends how a "replacement subscription" is strictly defined. I've certainly withdrawn funds from one flexible ISA, and subsequently deposited funds in a different flexible ISA (amongst other accounts, e.g. regular savers, easy access accounts and other non-flexible ISAs).

This is only an issue if the total you have subscribed (including money you have moved from one ISA to a different ISA as a subscription) exceeds £20k.

Exactly, hence why I've ignored this new hastily-introduced replacement rule because it's ludicrous taken at face value. Admittedly, I haven't cared to investigate whether there are qualifiers or exceptions. I also don't "move" money from one ISA to another; once money has been withdrawn, that's it — it becomes diluted into the general pool of accessible cash. What I do is keep track of subscription totals for each ISA (not just their current balances) and ensure that the combined ISA total doesn't exceed £20K. I'd probably initiate transfer procedures if one ISA needed a higher allowance but it's not a consideration with which I need concern myself at this moment in time, or this tax year.

The change has had the effect of making flexible ISAs somewhat more like non-flexible ISAs. So if you pay £20k into flexible ISA A, withdraw £10k and then later pay £10k into ISA B, you have breached the allowance by £10k. What provider A should be doing is listing the total subscriptions as £20k throughout, but separately listing a flexible allowance of £10k after the flexible withdrawal, as that can be repaid into that ISA and that ISA alone during the same tax year. They should then be reporting £20k subscriptions used to HMRC whether or not the £10k is replaced. While provider B would report £10k allowance used as it always would. This would prevent someone opening ISAs A, B, C, D, and paying £20k into each, withdrawing £15k from each just before the end of the tax year to avoid detection.

We do not yet know whether or not this will happen in practice (I suspect not).

Providers should just report full daily subscription histories for all ISAs so HMRC can automatically compute whether the annual allowance was ever breached at any point in the tax year, but that's probably asking for too much.

I agree entirely with this solution, and there were murmurings that something like that, or a real time reporting system, was in the works. But given the state of the "making tax digital" initiative and the promise vs reality for Personal Tax Accounts, progress is likely to be glacially slow if anything is done at all.