Mistake paying in too much to this year's ISA - Am I in trouble?

masonic

I find this solution very strange. If not cancelled under the cooling off period, then the penalty would apply:

If this penalty wasn't charged, then the cooling off period was used. In which case, the money should have been returned to you (to a non-ISA account) without interest and you'd be treated as never having that ISA. You would then be free to open another ISA and pay in the correct amount to use the rest of your allowance.

What they have actually done doesn't solve the oversubscription issue.

I would suggest cancelling this easy access ISA and starting again from scratch.

Mum161111

Thank you very much, masonic.  I'm really eager to do the right thing.  I don't  feel comfortable saying this - but it's true.  The person I spoke to told me that the rules said I could not have two cash ISA's.  I said that Halifax had told me I could keep my Bank of Scotland Cash ISA and have a Halifax Cash ISA too. I now wonder how reliable the overall information I have been given is.

The Halifax Flexible, Variable Cash ISA now has £5000 in it and the small amount of gross interest £1.93.  The Bank of Scotland  Fixed Cash ISA (1 year) has new funds paid in (£15000) this tax year.

I am certain I was advised to have the Halifax Fixed Cash ISA changed (by them) to a Variable Flexible Cash ISA.  The reason given was to enable me to withdraw the £1450 'overpayment' and  the result would mean that I would not have tp pay 90 days loss of interest penalty.

 Masonic, if I completely withdraw (closing) the Variable Flexible Cash ISA is it safe to put £5000  into another Fixec Cash ISA?

I really am confused.and I now don't  have confidence in what the bank have advised me to do.  The lady I spoke to put me on hold, spoke to their Savings Team, and came back with the answer I was given.  Cooling off period was not mentioned.
I am very grateful for your advice, thank you.

masonic

This is sadly typical of bank staff. Their knowledge of the ISA rules is generally quite poor. There is absolutely no issue with subscribing to multiple cash ISAs within the same tax year providing you do not exceed the £20k allowance overall.

At the moment, what you have is a Variable Flexible Cash ISA, to which you have subscribed £6,450 and flexibly withdrawn £1,450. But it is the former figure that determines how much of your allowance you have used (following the rule change in April 2024).

It is probably worth going back to them and letting them know you now understand that you can cancel these ISAs under the 14 day cooling off period and that this will have the effect of putting you back into the position you would have been in had you not opened them in the first place. They would not be reported to HMRC at all and you could then open a new fix at Halifax or elsewhere to use the £5k of allowance without there having been a breach of the allowance.

Mum161111

Thank you very much.  That's what I'll do tomorrow, masonic.

Kim_13

Asking to completely withdraw and close wouldn't solve the issue, as it needs to be processed as a cooling off cancellation in order for that portion of your ISA allowance not to be reported to HMRC as used. If going down that route, I would request it in writing so that you have a copy and there can be no argument about that you did ask to utilise the cooling off period. As the £1,450 has already been removed, then using the cooling off period at this point might only undo the £5,000 valid subscription that is in there anyway.

If you can remember the date and time of the call where this advice was given to you, as well as the name of the lady you spoke to, I would note them down so that you have them in case HMRC ever make contact over this issue - you relied on their advice and an ISA manager ought to know the rules. There's also an element of don't try to repair a mistake in HMRC's guidance - Halifax should have cancelled the Fixed ISA under cooling off and nothing else, since that option was available.

This feels like a grey area now in that there is an element of hope for the best involved. If the whole of the £6,450 is treated as having been subscribed to the Variable ISA then there will be no breach reported as you have flexibly withdrawn £1,450 and not replaced it and what they have done is fine albeit not the best way of going about it. 

Halifax appear to have concocted a fudge to ensure the £5,000 stayed with them, while denying the customer their legal right by saying that she would be charged a penalty unless this advice was taken. Thinking about it again, if the £5,000 is put back into a Fixed ISA, isn't there a risk that they will report £6,450 anyway as the £1,450 flexible withdrawal needed to get under the limit disappears? Do Halifax have a section on amount of allowance remaining / unrepaid withdrawals or similar that might help to work out what they're actually going to report to HMRC?

I'm not sure how they've calculated the interest as £6,450 for 1 Year at 4.75% would be £306.57 (rounded up), therefore 2 days is £1.68. Of which £1.30 would have been generated by the £5,000 of valid subscription so the interest you weren't entitled to tax free is pence. It'll cost HMRC more than that to send you a letter.

masonic

Kim_13 said:

Halifax appear to have concocted a fudge to ensure the £5,000 stayed with them, while denying the customer their legal right by saying that she would be charged a penalty unless this advice was taken. Thinking about it again, if the £5,000 is put back into a Fixed ISA, isn't there a risk that they will report £6,450 anyway as the £1,450 flexible withdrawal needed to get under the limit disappears? Do Halifax have a section on amount of allowance remaining / unrepaid withdrawals or similar that might help to work out what they're actually going to report to HMRC?

Like most providers, I don't think Halifax differentiates between flexibly withdrawn subscriptions and true remaining allowance, so this is unlikely to be helpful in determining the true situation.

Mum161111

I received ,£1.93 gross interest.  I withdrew £1450 and today'balance is £5001.93.  I understand now that I was not advised correctly and I'll check date and telephone call time before telephoning tomorrow. Kim_13.

Barkin

Mum161111 said:

The person I spoke to told me that the rules said I could not have two cash ISA's.  

That's Halifax' rules. You can only have one ISA with them, which is their prerogative.

You can still, however, hold additional ISA's elsewhere.

Mum161111

Thanks Barkin.  I telephoned Halifax and checked before opening the Halifax ISA.  I told them about my existing Bank of Scotland  cash  ISA and was told it was all right to have both.

It was when I contacted them to say that I had, by mistake, paid in £1450 too much that I was told about the rule.  I was able to explain that I had telephoned in advance to check.

When I 'phone tomorrow morning I'll be able to ask about the cooling off period, be put back into the position I was in before this mistake and start afresh with the remaining £5000 for this tax year.  I have already funded a Bank of Scotland fixed cash ISA with £15000 for this tax year.

It was definitely my mistake/error to pay £6450 to the new Halifax fixed cash ISA in the first place and I'll be relieved when it's sorted, hopefully tomorrow

Mum161111

UPDATE:  I telephoned the Savings Team this morning and, thankfully, everything has been sorted.  The Halifax ISA has been closed within the "Cooling Off" period and the £5000 is now available to fund another ISA. The funds were transferred by faster payment and arrived in my Current Account virtually immediately.

The lady who helped me was very thorough and took time to look into the situation.  She is going to arrange a letter to confirm that The Halifax ISA is closed.  HMRC will have no record of it.

My Bank of Scotland 'original' ISA was showing as could be funded with another £5000 making the total for this financial year the maximum £20,000 allowed.  Once 'everything' was settled I transferred £5000 from my Current Account straight into the Bank of Scotland ISA as it was still within the timescale when new funds could be added.

It really is a relief because I was worried about it.  A huge thank you to masonic, Kim_13 and all of you who have so generously given your time and provided helpful information/advice.  Your support has been greatly appreciated.