Mis-sold bond?

dhuggybear

Parents had an ISA with Lloyd's, Dad just received letter detailing maturity of what he thought was an ISA, turns out he'd moved his money from an ISA into a 2 yr fixed rated bond. Due to the sums involved he is probably going to be hit with a tax bill on the interest. No idea has to how this has happened. I believe my dad will have signed the necessary paperwork but hasn't realized he has taken money out of the ISA and moved to a bond without the tax free umbrella. Would presume there is nothing he can do about this situation but to try and get money back into an ISA while he still can. Thoughts?

eskbanker

Seems unlikely that there's any mileage in trying to revisit the original decision to use a taxable account and trying to pin anything onto the bank, but if it's maturing then does he have headroom in his ISA allowance to put £20K into ISAs either side of the change in tax year in five weeks time, i.e. £40K in total?

Dazed_and_C0nfused

dhuggybear said:

Parents had an ISA with Lloyd's, Dad just received letter detailing maturity of what he thought was an ISA, turns out he'd moved his money from an ISA into a 2 yr fixed rated bond. Due to the sums involved he is probably going to be hit with a tax bill on the interest. No idea has to how this has happened. I believe my dad will have signed the necessary paperwork but hasn't realized he has taken money out of the ISA and moved to a bond without the tax free umbrella. Would presume there is nothing he can do about this situation but to try and get money back into an ISA while he still can. Thoughts?

Your parents cannot have had "an" ISA as joint ISA's don't exist.

They are called Individual Savings Accounts for a reason.

dhuggybear

Yes that's the plan, would love to know what happened, had a quick Google and appears the ISA rates in Lloyd's would have been 5+% so have no idea as to how a taxable bond @4% came into play with a sum of 40+k pretty much guaranteed tax to be paid if I'm right!!

dhuggybear

Dazed_and_C0nfused said:

dhuggybear said:

Parents had an ISA with Lloyd's, Dad just received letter detailing maturity of what he thought was an ISA, turns out he'd moved his money from an ISA into a 2 yr fixed rated bond. Due to the sums involved he is probably going to be hit with a tax bill on the interest. No idea has to how this has happened. I believe my dad will have signed the necessary paperwork but hasn't realized he has taken money out of the ISA and moved to a bond without the tax free umbrella. Would presume there is nothing he can do about this situation but to try and get money back into an ISA while he still can. Thoughts?

Your parents cannot have had "an" ISA as joint ISA's don't exist.

They are called Individual Savings Accounts for a reason.

Yes understand that. Unsure exactly what's happened may have merged their withdrawals and put all into this bond, will ask tomorrow if they have any details on the old accounts which closed to put into the bond.

dunstonh

You explained the scenario but nothing about why you think it was missold.  So, why do you think it was missold?

Dazed_and_C0nfused

dhuggybear said:

Yes that's the plan, would love to know what happened, had a quick Google and appears the ISA rates in Lloyd's would have been 5+% so have no idea as to how a taxable bond @4% came into play with a sum of 40+k pretty much guaranteed tax to be paid if I'm right!!

Well as each parent can theoretically have £18,570 in taxable interest before paying tax not necessarily.

That figure reduces if they have earnings or pension income but even then with the savings starter rate band and savings nil rate band a tax liability is far from certain.

As ever with tax the devil is in the detail.

Bostonerimus1

I'm generally not one to defend the financial industry, but do you actually have any evidence that anything was "mis-sold"? It's always difficult when you see bad financial choices being made and it's natural to look for someone to blame, but did your father just make a mistake here?

Hoenir

Banks aren't going to provide tax advice per se. Transfers and choices of product aren't "sold" to customers. 

dhuggybear

dunstonh said:

You explained the scenario but nothing about why you think it was missold.  So, why do you think it was missold?

Money took out of an ISA and then put in a bond which would be subject to tax. Can't think of any reason why this would have been offered as an option and had a quick look and Isa rates were 5+% in 2023 makes no sense

masonic

dhuggybear said:

dunstonh said:

You explained the scenario but nothing about why you think it was missold.  So, why do you think it was missold?

Money took out of an ISA and then put in a bond which would be subject to tax. Can't think of any reason why this would have been offered as an option and had a quick look and Isa rates were 5+% in 2023 makes no sense

According to the wayback machine, the best rate Lloyds were offering on an ISA was their 2 Year Fixed Rate Cash ISA at 2.90% (equivalent to 3.63% taxed at basic rate), so a taxable bond at 4% would be the better option as long as only basic rate tax applied. Some of the interest probably would have been tax free.

https://web.archive.org/web/20230228004412/https://www.lloydsbank.com/savings.html#c_115_accordion_2305

Their Cash ISA Saver at the time paid just 0.65%!

Looks like a sensible choice for someone wishing to continue to save with Lloyds. It is the choice to stick with Lloyds that was unwise, but you cannot reasonably expect Lloyds to recommend he go elsewhere. Choice of provider is 100% his responsibility.

Also, top ISAs 2 years ago can be found in the MSE weekly tips: https://www.moneysavingexpert.com/tips/2023/03/08/

Quite a bit below 5%. The Lloyds bond is not a best buy, but it is by no means derisory compared with the likes of SmartSave or Atom Bank at ~4.4%. The Virgin or Shawbrook 2 year fixed ISA might have been a better shout, but would he have wanted this hassle?