Checks you must make before you open an ISA for an investor.
When can an Individual Savings Account (ISA) be opened
Before an ISA can be opened the investor must agree to the manager’s terms and conditions and apply to subscribe.
Before a manager can open an ISA, he must hold all of the following:
- a valid application, which he has accepted (see signature)
- a valid ISA subscription
- the date on which the ISA manager accepts the application form
- the date on which the subscription is made (see date of subscription)
This means that a manager may accept an application before a subscription is made, but if he does the ISA does not begin until a subscription is made.
The manager should record the date he accepted the application (which may not be before the date of application) in his records.
An ISA application received near the end of the tax year will be regarded as opened in that tax year if both of the following apply:
- the ISA manager has accepted the application before the end of the tax year
- the subscription is made before the end of the tax year
If the account is not physically set up until after the end of the tax year the ISA should be shown as opened on 5th April. We therefore recommend that ISA managers make arrangements to examine, before the end of the tax year, all applications received to ensure that they are complete (see completion of application forms), and that a valid subscription has been made.
Subject to the guidance on withdrawal, ISA managers may, in their terms and conditions, allow investors the right to cancel their cash subscription to an ISA, or packaged product within an ISA, within a set period after the receipt by the investor of the notice of the right to cancel. Provided that this period – the cancellation period - does not exceed 30 days (after the notice has been received), investors who cancel their subscription within the cancellation period are exempt from UK income and capital gains tax on any income or gains arising from the subscription in the period (but see the 2017 to 2018 rule for Lifetime ISA).
Strictly investors who withdraw their subscriptions from an ISA by exercising their right to cancel have made a subscription to an ISA. But where the subscription is cancelled within the set period, investors will be treated as though they have not subscribed to an ISA.
Please see the guidance in respect of treatment of requests to cancel Lifetime ISA subscriptions.
Where a subscription is cancelled within the set period, ISA managers should both:
- notify investors that the cancelled subscription does not count as a subscription to an ISA
- exclude the cancelled subscription from their annual return of information
Where a subscription is cancelled after the set period, ISA managers should:
- notify investors that the cancelled subscription counts as a subscription to an ISA (and that they cannot subscribe to another ISA of the same type in that tax year)
- include the cancelled subscription on their annual return of information
Where a purchase of a packaged product in an existing ISA is cancelled, the ISA remains valid and the subscription may then be used to purchase other qualifying investment(s).
Please see the guidance in respect of treatment of requests to cancel Lifetime ISA subscriptions.
Instead of providing cancellation rights, ISA managers may allow investors the right not to proceed with the ISA contract (a pre-contractual right to withdraw). The withdrawal period is 7 to 14 calendar days from the receipt by the ISA manager of the application to open an ISA.
Where withdrawal rights are offered:
the ISA can only begin on the expiry of the withdrawal period, therefore the application must be received by the ISA manager by 22 to 29 March of the tax year for which the application is made (depending on whether the withdrawal period is 7 to 14 days)
during the withdrawal period the client money rules of the ISA manager’s regulatory body will apply to the cash subscription
any interest which is paid at the end of the withdrawal period will not be exempt from tax and will count towards the subscription limit if it is paid into the ISA.
Investors who exercise their right to withdraw from the ISA contract are free to subscribe to another ISA in the same tax year.
Completion of applications
ISA managers should examine applications and ensure they are fully completed. Applications may be accepted provided the ISA manager has no reason to believe that the investor:
is not, or might not be, entitled to subscribe to an ISA
has given false information in the application
Applications must contain the investor’s full name (which does not have to include a middle name or initial). So an application showing Mr John Joseph Bloggs, Mr John J Bloggs or Mr John Bloggs is acceptable but Mr J J Bloggs or Mr Bloggs is not.
Applications must contain the investor’s permanent residential address. ISA managers may hold other addresses on their systems for correspondence purposes.
Applications with an incomplete address, or with a ‘PO Box’ or ‘care of’ address, are not acceptable. But where the address is a retirement home, nursing home, hospice or hospital, this address can be accepted. British Forces Post Office (BFPO) addresses can also be accepted.
In strictness, investors who do not have a permanent residential address (because, for example, they live on a houseboat that does not have a home mooring) cannot subscribe to an ISA. However, by concession we’ll allow such investors to subscribe to an ISA. In place of the permanent residential address the investor should provide a correspondence address. And the manager should obtain confirmation that the investor does not have a permanent residential address and keep that confirmation with the application.
The permanent residential address should include the postcode (see personal information). Where, exceptionally, an investor does not have a postcode, for example where the investor lives on a new estate and a postcode has not been allocated, the application can be accepted. Confirmation that a postcode does not exist must be obtained and kept with the application. And the postcode must be obtained as soon as it’s allocated.
Date of birth
Applications must contain the investor’s date of birth (personal information)
Where, exceptionally, the investor does not know his or her date of birth, the year of birth must be given. This exception does not apply to Lifetime ISAs where the applicant must provide a full date of birth.
National Insurance number
Applications must contain the investor’s National Insurance number, or confirmation that he or she does not have one (see personal information). This exception applies only in respect of applications for cash ISAs, stocks and shares ISAs, or innovative finance ISAs but does not apply to Lifetime ISAs where a national insurance number must be provided.
National Insurance numbers consist of nine characters (for example QQ123456C). Characters 1 and 2 must be alpha and must be one of the issued National Insurance number prefixes. Characters 3 to 8 must be numeric. Character 9 must be alpha in the range A to D or a space.
Manager’s validation checks are limited to checking that the format is AB123456C and that the final character is an A to D or a space.
National Insurance numbers can usually be found on:
pay slips (provided in respect of current employment and pensions received from former employers)
forms P60 (provided at the end of each tax year in respect of current employment and pensions received from former employers)
forms P45 (provided by employers when someone leaves a job)
notices of coding, tax returns or other letters from the investor’s tax office
letters from the Department of Work and Pensions (DWP)
unemployment benefit books
pension books (on the front cover)
medical cards issued in Scotland.
An investor may only have a National Insurance number that is an old format and consequently not in the format above. Such investors should be treated as though they do not have a National Insurance number .
Where an investor does not have a National Insurance number , has one in an old format, or has a temporary National Insurance number and the ISA manager’s system requires the capture of a National Insurance number , the manager should use the ‘universal dummy National Insurance number ‘ – XX999999X. No other dummy or substitute National Insurance number should be used, but see specific guidance for Junior ISAs and Lifetime ISAs.
Some individuals are given temporary National Insurance numbers - usually where they have recently commenced employment and have lost their National Insurance number , or where they have returned from a period abroad. A temporary National Insurance number number consists of ‘TN’ plus date of birth plus gender (for example, TN110948M or TN161054F).
Temporary National Insurance numbers must not be used for Lifetime ISAs.
Some HMRC letters to taxpayers include a ‘temporary reference’ consisting of 2 numbers, 1 letter and 5 numbers (for example, 63T12345).
Investors who enter a temporary National Insurance number or a temporary reference on their application form should be treated as though they do not have a National Insurance number.
ISA managers may find it useful to include the following text on applications to ask applicants whether or not they have a National Insurance number :
‘Do you have a National Insurance Number?
Yes or No - tick one box
If yes: you must enter it here
(If you do not know it, you should be able to find your NI number on a payslip, form P45 or P60, a letter from the HMRC, a letter from the DWP, or pension order book)’
Where an application is received without all the required personal information, ISA managers may, if they wish, open the ISA on a provisional basis.
Where an ISA manager opens an ISA on a provisional basis, the ISA will be valid from the date it was opened provided that, within 30 calendar days of that date the ISA manager obtains the missing personal information.
The missing information can be provided either by the investor, by the investor’s agent, or from the manager’s own records, and should be added to or retained with the application form. If the application form is amended the person making the entry should initial the amendment.
ISA managers should explain to the investor that:
the application could not be accepted because the it did not contain all the personal information required under the ISA rules
before the application can be accepted, the investor must provide the missing personal information
in the meantime, an ISA has been opened on a provisional basis
if the missing personal information is not received within 30 calendar days of the date on which the ISA was opened, it will be cancelled and all tax exemptions lost, and void the ISA where the missing personal information is not received within 30 calendar days of the date on which it was opened
ISA managers must enter complete details of personal information on returns of information.
Applications made in writing must contain the signature of the investor or the person holding the power of attorney for the investor.
The signature of a power of attorney will only be acceptable if:
the investor is physically incapable of signing the return, in which case the signatory must be an attorney acting under a general or enduring power. If the person is unavailable to sign the return, for example because of absence abroad, the signature of the attorney is not acceptable
a registered lasting power of attorney is in place
Whether or not a person acting in a capacity has the authority to sign the application should be established before the application is accepted.
A photocopy or fax of a signature is not acceptable and a name that is printed is not an acceptable signature.
Applying for an ISA on behalf of someone else
Strictly, all ISA applications must be made by the investor. But an ISA manager may accept an application from someone holding a LPA which has been registered with the Public Guardians Office and which gives the attorney the power to make the decision to open an ISA.
Once registered, an LPA is effective whether or not the donor of the power has mental capacity.
The ISA manager must:
see the LPA (or a certified copy of it) and retain a copy for their records in case the account is queried by HMRC auditors
check any restrictions on the LPA to see that it is broad enough to cover the opening of an ISA
If the ISA manager has any queries about the registration of the LPA or the scope of it, these must be referred to the Court of Protection which is the ultimate arbiter of all matters relating to persons who lack mental capacity and on questions which arise in relations to an LPA.
Alternatives to a registered LPA that can be used to open an ISA
In England and Wales, an Enduring Power of Attorney made and signed before October 2007 that has been registered with the Public Guardians Office.
In Scotland, an equivalent registered authority can be used, for example an Intervention Order or a Guardianship Order.
In Northern Ireland, an Enduring Power of Attorney that has been registered with the High Court (Office of Care and Protection).
Managers may accept applications signed under a General Power of Attorney where the investor is unable to sign the application because he or she is a member of the armed forces on active service in a war zone (for example, Afghanistan).
An application may also be made by the parent, guardian, spouse, civil partner, son or daughter of an individual who lacks mental capacity. ISA managers should:
ask the person making the application to confirm that the investor lacks mental capacity, and to state the nature of their relationship with the investor
ask to see documentation to show that the investor lacks mental capacity - suitable documentation would include letters or payment books that show the applicant is entitled to disability living allowance, severe disablement allowance or incapacity benefit
make a (brief) note with the application of the documentation seen, and retain the written statement with the application
If the investor is physically incapable of signing the return, the signatory must be an attorney acting under a general or enduring power. Whether or not a person acting in a capacity has the authority to sign should be established before the application is accepted.
These are the only circumstances in which a manager may accept an application from someone other than the investor. In particular, a manager may not accept an application where (for example) the investor is capable of completing the application form, but is merely too busy, or is on holiday abroad (unless that person has given a Lasting Power of Attorney which has been registered).
In all cases ISA managers must report the full name (which does not have to include a middle name or initial as per personal information), permanent residential address (including postcode), date of birth and National Insurance number of the incapacitated person on returns of information.
Once an ISA has been opened on behalf of an investor, there are no particular ISA rules about who can operate that (opened) account on behalf of the investor. If the manager receives a mandate from the investor they should treat it in the same way as they would if it related to a non-ISA account.