When do banks inform HMRC you have an ISA?

Richardbajor

Both myself and my wife took out a second ISA with the Co-Op bank in the same tax year (neither of us going over the £20k limit when you add up each of our two ISAs).

I didn't realise that the Co-Op (maybe other banks as well) do not allow you to make multiple payments into an ISA fund in a single tax year unless they are variable and can be added to the existing ISA- ours were fixed rate/fixed term.

For my ISA the Co-Op picked this up, although not by informing me. I just saw the second ISA had been refunded to my current account and had to ring them to understand why.  This was regarded as being within the 30 day colling off period and I was verbally told that no this does not affect my ISA allowance and I can take out another ISA with another bank and not be penalised for the cancelled ISA.

However with my wife they did not pick this up but we thought it better to ask them via online banking so as not to lose the ISA allowance at a later date if we were into the new tax year.  They have now cancelled her second ISA as a result of the message but we are onto our third message now about whether this will still be counted towards her ISA allowance, especially now being outside the 30 day cooling off period.

Maybe the next reply from them will answer this definitely but given they didn't really seem to understand the issue from their previous responses I'm not entirely convinced they will understand the issue even if they give me a go ahead type of response.

It may be that we still have to ask the bank the situation until we get a clear answer but it would be helpful if someone could tell me at what point HMRC is informed of an ISA (end of Tax Year or when taken out). Also whether the standard practice with banks is to charge taxable interest on any ISA that is cancelled regardless of whether it is within the 30 day colling off period or after this point.

eskbanker

If you're talking about the current tax year, there is no problem with funding multiple ISAs of the same type, subject to the aggregate annual limit of £20K, so you have nothing to worry about with HMRC.

Some providers don't allow you to fund multiple ISAs with them but that's not a breach of the scheme rules as such, so won't be a problem for HMRC.

In terms of your actual question, the returns are submitted annually to HMRC, by the end of June I think....

Richardbajor

eskbanker said:

If you're talking about the current tax year, there is no problem with funding multiple ISAs of the same type, subject to the aggregate annual limit of £20K, so you have nothing to worry about with HMRC.

Some providers don't allow you to fund multiple ISAs with them but that's not a breach of the scheme rules as such, so won't be a problem for HMRC.

In terms of your actual question, the returns are submitted annually to HMRC, by the end of June I think....

Thanks- that sounds promising although I'm still not sure whether they might count the cancelled ISA as an ISA and send a return in June or whenever that says yes she took out an ISA and we paid £50 tax free interest on it- ie so counting against her £20k allowance.

eskbanker

Cancelling an ISA within the 30 day cooling-off period has the effect of essentially reversing all opening and funding activity as if it had never happened, so isn't reported to HMRC.

Beyond that, my expectation would be that it would be reportable, i.e. it would be regarded as having been opened, funded and then closed more than 30 days later.

masonic

If they've rejected the subscription then it should not be reported, even if it took them more than 30 days to reject it. It will likely take years for HMRC to catch up should Co-op report this in error, so preserve the evidence of the closure by the bank (not based on any instruction by you) and forget about it until the unlikely event it happens. If HMRC were to deem this a valid subscription, then you could open a complaint against Co-op for not affording you the option to transfer the money out, preserving your ISA allowance.