Flexible ISA mess - caught out by new rules

gogruff

I think I've fallen foul of the change in the rules around flexible ISAs, which I've only just found out about.

At the start of the tax year the guideline was that any current year contributions could be withdrawn from a flexible ISA and replaced into any other ISA the same tax year without affecting your limit. So withdraw any or all current year contributions from ISA A, put it into ISA B, and as long as ISA A is flexible it's as if those contributions to ISA A never happened.

At the start of the tax year I had a flexible cash ISA with Zopa which had previous years money in it. Let's call this ISA 1. I put in some money this year, then later in the year I took all of the current years contributions out and transferred all previous years money to a new flexible cash ISA, ISA 2, resulting in the closure of ISA 1.

I then put back the current year money I'd taken out of ISA 1, dividing it between ISA 2, and a new Zopa flexible cash ISA, ISA 3. Under the old rules this was fine. (TBH I would have just kept ISA 1 open but Zopa don't allow partial transfers.)

However, if I take account of the change in the rules (i.e. you must put back flexible ISA money into the same ISA you took it out of, or you effectively leave a "tide mark" that counts against your ISA limit), I'm over the £20K limit by about £6K. Even more so, if I somehow have to take into account the now non-existent ISA 1 as well.

Does anyone know if there is a workaround that will keep me within the rules and allow me to keep within the £20K limit? For example if I transfer ISA 3 into ISA 2 resulting in ISA 3's closure, does that then become the "same" ISA?

Or do I have to treat all 3 flexible ISAs (even the closed ISA 1, which I have no way of adding money back into) as separate pots with their own "tide marks"? Does it matter that ISA 1 and ISA 3 are with the same provider?

The apps for these providers still seem to behave as if the old rule is in effect i.e. if you withdraw contributions it's taken off your £20K limit as if you'd never made the contribution, and there is no indication of the "tide mark".

I wonder if I'm just better off keeping my net contributions this year below £20K between ISA 2 and 3 (i.e. obeying the rule that was actually in force at the start of the tax year), keep quiet, and hope HMRC doesn't actually try to enforce this sneaky new rule. There's not much I can do about ISA 1, or about any of the money I've already put in.

masonic

Transferring the accounts together would resolve the issue, but to date, the reporting system hasn't been changed from net subscriptions to a high water mark. It may not happen in time for this tax year, with HMRC only identifying and acting upon this change to the legislation a month in to the tax year.

gogruff

Thanks for this. I think I'd rather transfer them together if that will resolve it, even if it's possible that it wouldn't get picked up on.

Maybe a daft question but does the direction of transfer matter? ISA 3 is the one with the high water mark so is it better to go ISA 3 > ISA 2 or is that irrelevant?

slinger2

You're not the only one in this boat. I put £9k in Chip early in this tax year and then shortly afterwards took that out and added it to a fixed rate ISA with Shawbrook.

Personally I'm working on the principle that probably HMRC won't notice or, if they do, they won't say anything. If they do I'll explain that I was using the old rules and, based on those old rules, I never subscribed more than £20k of new money.

masonic

gogruff said:

Maybe a daft question but does the direction of transfer matter? ISA 3 is the one with the high water mark so is it better to go ISA 3 > ISA 2 or is that irrelevant?

I suppose if ISA 3 had previously been topped up close to the limit and you were transferring ISAs into ISA 3, then if they were really on the ball they could question how it is possible that they are transferring in current year subscriptions totalling more than they know you have available. Though I think the chances of that being noticed are very slim.

jimjames

Personally I'd just leave it as is if you haven't contributed more than the £20k in total and would have met the old rules (or ones in force at the start of the tax year) and just make sure you are compliant with new rules for next year.

Money_Grabber13579

I had a similar problem a number of years ago, in that I accidentally contributed more than 20k across a number of ISAs. When I noticed, I withdrew the excess over the 20k, but I couldn’t do anything about the interest I’d earned for the time more than 20k was in the ISA. I never heard anything more about it.