Find out the rules on ISA subscriptions and what counts towards the subscription limit if you're an ISA manager.
The overall subscription limit for the tax years 2017 to 2018 is £20,000.
The Lifetime ISA payment limit for 2017 to 2018 is £4,000. Where a payment is made to a Lifetime ISA that is a new subscription (for example, it is not a transfer from another type of ISA) this will form part of the overall ISA subscription limit.
From 6 April 2017 the overall ISA limit of £20,000 can be split between a cash ISA, a stocks and shares ISA, an innovative finance ISA and a Lifetime ISA as the investor wishes but only to the extent that the £4,000 Lifetime ISA limit is not breached.
For 2016 to 2017 the overall ISA limit of £15,240 could be split between a cash ISA, a stocks and shares ISA, and an innovative finance ISA as the investor wishes.
An investor aged under 18 can only subscribe to a cash ISA but can subscribe up to the overall subscription limit for the tax year.
Managers’ systems must ensure that:
- no more than the overall limit can be invested to either a cash, a stocks and shares, an innovative finance ISA, or a Lifetime ISA
- no more than the Lifetime ISA limit can be invested into a Lifetime ISA
- investors do not subscribe to a disallowed combination of ISAs as per the “one type of each ISA a year” rule
- where the investor subscribes to any combination of cash ISA, stocks and shares ISA, innovative finance ISA, and Lifetime ISA with them, the amount subscribed does not exceed the overall subscription limit
Where, as a result of mergers, amalgamations or takeovers, an ISA manager finds himself operating two (or more) systems that do not communicate with each other, with the result that he cannot comply with the requirements above, we would expect that if the systems are updated, the new system will comply.
In the meantime, managers may adopt one of the following procedures:
- carry out cross-checks between the two systems at regular intervals to identify oversubscriptions and subscriptions to a disallowed combination of ISAs. Where they find that:
- the investor has subscribed to a disallowed combination of ISAs – including Lifetime ISAs - (and the cross-check takes place within 60 days of the first subscription in the tax year to the second ISA) they may treat the second ISA as being opened provisionally pending the cross-check and void it without contacting HMRC. However, with regard only to Lifetime ISAs the ISA manager must first contact HMRC before taking voiding action
- the investor has exceeded the overall subscription limit, (and the cross-check takes place within 60 days of the over-subscription) they should remove the over-subscription from the ISA without contacting HMRC. However, with regard to Lifetime ISAs, where the overall ISA subscription limit has been exceeded but the Lifetime ISA payment limit has not been exceeded, the excess must be removed from accounts which are not Lifetime ISAs in date order. This is the rule despite the fact that the date of first payment into the Lifetime ISA was later in the tax year than the date of first subscription to any other ISA
- carry out cross-checks between the two systems as above and advise any investor found to have subscribed to a disallowed combination of ISAs, or exceeded the overall subscription limit, that HMRC will contact them in due course. This applies except with regard to a Lifetime ISA, where the ISA manager must contact HMRC
- do nothing, and let HMRC find the investors who have subscribed to a disallowed combination of ISAs, or exceeded the overall subscription limit on examination of managers’ end of year information returns. This option may not be exercised in respect of Lifetime ISAs
Managers are not required to establish the amount subscribed to ISAs held with other managers. Investors who subscribe to ISAs held with different managers are responsible for ensuring that they do not subscribe to a disallowed combination of ISAs, and that they do not exceed the overall subscription limit.
Managers who become aware that an investor has subscribed to a disallowed combination of ISAs with different managers, or has exceeded the overall subscription limit, should advise the investor that HMRC will contact them in due course.
For non-flexible ISAs the subscription limits apply only to the amount subscribed, and the amount subscribed is not reduced if an investor makes a subsequent withdrawal. An investor who has not subscribed up to the limit in any year cannot carry forward the difference and add it to the subscription limit for the next year.
Investors who become 18 during a tax year may subscribe up to the subscription limit to a cash ISA before their 18th birthday. After their birthday they may also subscribe to a stocks and shares and/or an innovative finance ISA and/or a Lifetime ISA. The overall subscription limit available is reduced by the amount already subscribed to the cash ISA before the birthday.
Investors can subscribe cash to each type of ISA. They must subscribe with their own cash, and this includes payment by cheque, direct debit, charge card, credit card, telegraphic transfer and standing order. Cash subscriptions from third parties can be accepted without question unless the ISA manager holds information that shows that the cash does not belong to the investor.
Parents who give money to their children (aged under 18) to invest in their cash ISA need to be aware that if gifts from a parent produce more than £100 gross income in a tax year, the whole of the income from the gifts is normally taxed as that of the parent. The child’s gross income includes income from cash ISAs, but excludes income from Junior ISAs, which is specifically excluded.
Cash subscriptions from the investor’s employer may be accepted where the employer confirms that the payment will be treated as a relevant payment to an employee for the purposes of the pay as you earn (PAYE) regulations and a payment of earnings for the purposes of Class 1 National insurance contributions (NIC).
The ISA regulations allow investors to subscribe by lump sum, or by regular or irregular periodic payment, provided the subscription limits are not exceeded. The ISA manager may impose conditions, such as a minimum lump sum subscription. Further information is available in relation to payments to life insurance policies.
Date of Subscription
Where the ISA manager has an instruction from the investor and is in control of the collection of the payment, the date of subscription is the date the manager is instructed to collect the payment provided:
- the instruction was accepted
- the payment is received in due course
This will cover:
- cheques – the date of subscription is the date on which the cheque is received and accepted by the ISA manager, provided the cheque clears in due course. If the cheque does not clear, the date of subscription depends on whether the original cheque can be re-presented, or whether it must be returned to the investor
- if the manager can re-present the original cheque without having to return it to the investor, the date of subscription is the date on which the cheque was received and accepted by the ISA manager (it has just taken longer to clear)
- If the manager has to return the cheque to the investor, the investor has not made a subscription and the amount of the failed subscription will not count towards the ISA subscription limit. If the investor submits an amended or replacement cheque the date of subscription will be the date on which the amended (or replacement) cheque is received and accepted by the ISA manager
- direct debit – the date on which the ISA manager is authorised to draw on the direct debit, provided that the cash transfer takes place in due course. If that date is earlier than the date on which the direct debit mandate is received and accepted by the ISA manager the date of subscription is the later date (further information is available in circumstances where the investor makes a claim under the direct debit indemnity scheme
- debit card, charge card or credit card – the date on which authorisation is given by the investor
- transfers from a non-ISA account held with the same manager (as the manager is in control of the payment into the ISA)
In the 4 cases above, if, due to manager error, there is a delay between accepting the instruction/authorisation and the collection of the subscription, the date of the subscription should be treated as the original date intended for the subscription (even if this was in an earlier tax year) provided the manager had accepted the instruction by that date. Where the subscription is backdated to an earlier year and the annual information return for that year has been submitted, there is no need to make an additional report.
Where the collection of the payment depends upon another body so that the ISA manager is not in control (and may be unaware that a payment will be made), the date of subscription is the date the ISA manager receives the payment. This will cover standing orders and telegraphic transfers where the instruction to pay sits with someone other than the ISA manager.
If the payment instruction has been received and accepted by the ISA manager but due to manager error there is a delay before the sum is applied to the ISA, any compensation paid to cover lost growth and/or income, can be added to the ISA without counting as a fresh subscription. This differs from the situation described in Delay in opening an ISA, or in accepting a subscription as in that case the instruction has not been accepted.
Direct debit indemnity scheme
Where money is taken out of an account by direct debit by mistake, the account holder can claim the return of the money. The account holder’s bank repays the money to the account holder, and claims back that amount from the recipient bank. In effect the transaction is unwound.
This might happen where a subscription is made under direct debit to an ISA in year 1 and the ISA manager mistakenly continues to draw on the direct debit in year 2. In these circumstances the investor might make a claim under the direct debt indemnity scheme.
Where an investor makes a successful claim under the direct debit indemnity scheme the subscriptions unwound are treated as if they had never been made (in the same way as for a failed cheque, read date of subscription) for more information. If any income tax has been claimed from Savings Scheme Office (SSO) in respect of income earned by the unwound subscription it must be repaid.
A subscription may not be unwound unless a successful claim is made under the indemnity scheme – it is not sufficient for the investor to simply claim that they subscribed in error.
Where the account is a Lifetime ISA, and the subscription to be unwound has resulted in a government bonus payment, the ISA manager must first notify SSO and seek instructions as to how to correct the account.
Generation of a cash subscription by the disposal of existing investments
The direct transfer of shares into an ISA is allowed only where the shares were issued to the investor under a schedule 3 Save As You Earn (SAYE) option scheme, approved profit sharing scheme or a schedule 2 Share Incentive Plan (SIP).
Investments held by an investor outside an ISA can be sold, and the proceeds subscribed to an ISA. Investors and ISA managers should note that the sale of the investments is a disposal for capital gains purposes.
The ISA subscription can be used to buy back the same investments within the ISA provided certain conditions are met. This is a ‘Share Exchange’ (sometimes called ‘Bed and ISAing’).
For any acquisition of investments in an ISA, the conditions that must be satisfied are as follows:
- the investments must not be purchased from the investor, or from the investor’s spouse or civil partner
- the investments must be bought at the open market price
- any stamp duty or stamp duty reserve tax paid on the purchase of the ISA investments must be paid out of cash held in the ISA
- where sale and purchase instructions are given on the same day, the funds generated by the disposal of the investor’s shares must be available to meet the purchase on settlement day
Where sale and purchase instructions are given on the same day, the settlement date for the sale transaction could be later than the settlement date for the purchase. For example, the sale could be carried out on a T+4 deal while the purchase will be made on a T+2 deal resulting in a 2 day deficit period on the manager’s systems. Where instructions are given at the same time to match a purchase with a sale, any short period in which the account goes into deficit on the ISA manager’s systems will not breach the ISA rules.
The subscription date can be the date on which the investor’s units or shares are sold, the settlement date for the purchase or any date in between that the investor chooses, provided the funds generated by the disposal of the investor’s shares are available to meet the purchase on settlement day.
A new ISA opened in this way can therefore be opened in the tax year in which the investor’s shares/units are sold.
An investor cannot directly transfer an existing insurance policy into an ISA. However, an existing policy can be surrendered, and the proceeds used to subscribe to an ISA. The surrender would be a chargeable event and the investor may be liable to a taxable gain, unless it is a ‘time served’ qualifying policy. A subscription could also be made from the proceeds of a part-surrender. Part-surrenders may also be chargeable events.
The proceeds from the surrender or part-surrender of an insurance policy can be subscribed directly to the investor’s ISA if the investor agrees. This also applies where the ISA manager has delegated his ISA functions to an insurer. The insurer may, with the investor’s agreement, retain the surrender proceeds and reinvest them in the ISA. The chargeable event rules will still apply where funds are retained for reinvestment.
Insurers can write a life insurance policy with an option to substitute an ISA policy. Exercise of the option would be a chargeable event, unless the policy was a ‘time served’ qualifying policy. The investor may be liable to a taxable gain.
Peer-to-peer loans and crowdfunding debentures held outside of the ISA wrapper cannot be sold, and repurchased inside an innovative finance ISA except where the loans are available for purchase, at the same price, by any lender in the open market.
Subscription by transfer of shares
Shares can be directly transferred into an ISA (including a Lifetime ISA) if they have been acquired by the investor from a schedule 3 SAYE option scheme or a schedule 2 SIP. Shares cannot be directly transferred into an ISA in any other circumstances. Share Incentive Plans were previously known as Approved Employee Share Ownership Plans. Shares could formerly be transferred from an approved profit –sharing scheme but this is no longer the case.
Shares or depositary interests representing shares that have emerged from an schedule 3 SAYE option scheme or a schedule 2 SIP may be replaced by other investments prior to transfer to an ISA following a company reorganisation or reconstruction. The ISA rules only allow shares or depository interests to be transferred into an ISA. Other investments, such as loan notes, cannot be transferred. So if the shares or depositary interests representing shares are replaced by investments other than shares or depositary interests the replacement investments cannot be transferred into an ISA. Further information is available on the action to be taken following changes in investments held in stocks and shares ISA after transfer has taken place.
The market value of the shares at the date of transfer counts as the amount subscribed to the ISA. The total of the share value and any other cash subscribed to the ISA must not exceed the subscription limit. ‘Date of transfer’ is the date the manager accepts the shares and will usually be when the manager receives the share certificate.
The investor may be able to transfer registered title to shares in a schedule 3 SAYE option or schedule 2 SIP directly from the registrar or trustees of the scheme to the ISA manager or the ISA manager’s nominee.
Schedule 3 SAYE option scheme shall be construed in accordance with the SAYE code (see S516(3) Income Tax (Earnings and Pensions) Act (ITEPA) 2003).
Approved profit-sharing schemes are defined in Chapter IV of Part V of the Income and Corporation Taxes Act 1988. Schedule 2 Share Incentive Plan shall be construed in accordance with the SIP code (see S488(3) of ITEPA 2003).
ISA managers can obtain further information from the Share Schemes web pages.
Documentary evidence of shares from schedule 3 SAYE option scheme, approved profit sharing schemes and schedule 2 SIPs
The trustees of the SAYE option scheme or SIP may provide ISA managers with evidence that the shares have been transferred from the schemes. If not, the investor must provide documentary evidence of this to the ISA manager.
Under the Share Incentive Plan the trustees give the employee notice of the award where they award free, partnership and or matching shares for the employee. The trustees give the employee notice of the acquisition where they acquire dividend shares for the employee. ISA managers may accept a copy of any of these notices as sufficient evidence that the shares have been transferred from this type of scheme.
ISA managers should not allow transfer of shares into an ISA prior to the receipt of those shares by the investor; even where the investor holds shares equivalent to those that will emerge.
Time limit for transfer of shares from SAYE option schemes and Share Incentive Plans
Investors must transfer shares from a Schedule 3 SAYE option scheme into an ISA within 90 days of the exercise of option date.
Investors must transfer shares from a Schedule 2 Share Incentive Plan into an ISA within 90 days after the shares ceased to be subject to the plan.
Where a withdrawal period applies, the transfer of the shares to the ISA cannot take place until after the end of the withdrawal period.
Valuation of share transferred from SAYE options schemes or Share Incentive Plans
For market value of listed shares, see purchasing investments. ISA managers must agree the value of unlisted shares with shares and assets valuation (SAV) before a transfer can be accepted.
Contact details for SAV are:
Shares and Assets Valuation
Fax number: 03000 564567
Email address: firstname.lastname@example.org
If you have any general valuation queries, advisers at the SAV enquiry line (0300 1231082) will try to assist where possible.
The enquiry line is open from 8.00am to 4.00pm Monday to Friday.
SAV will need the following information to provide a valuation:
- a copy of the company’s accounts for the last three financial years before the proposed date of transfer, and any subsequent interim statement or declaration of interim dividend for the company’s current financial year
- a copy of the rules of the SAYE option scheme, or Share Incentive Plan
- an estimate of the value of the shares, with a brief explanation of how that estimate was made
- details of any recent arms-length transactions in the shares, including the date of each transaction, the amount of shares sold, and the price paid for each share
If the documents and information have been supplied to SAV for a previous valuation, reference to that valuation may be sufficient. SAV will advise. For non-EU shares the value is, normally, the closing price in sterling for the day on which the investor applies to transfer the shares to his or her ISA. Shares may be transferred into an ISA pending agreement of their value. If the agreed value takes the shares (and any cash subscribed) over the subscription limit then excess shares, and a matching proportion of any dividends received, must be taken out of the ISA and returned to the investor to hold outside the ISA. The ISA manager must repay any tax credits claimed in respect of the excess shares to SSO, normally by deducting the amount over-claimed from the next claim.
Shares held on behalf of an investor in a schedule 3 SAYE option scheme or a schedule 2 SIP may be replaced by new shares because of a company reorganisation or reconstruction. If the new shares are equated with the old shares for the purposes of capital gains tax, then the new shares can be transferred into an ISA as if they were the original shares.
Where the reconstruction takes place after the shares have been transferred into an ISA, please refer to guidance on changes in investments held in stocks and shares ISA.
Stock or ‘scrip’ dividends received by trustees of an approved profit sharing scheme must be passed directly to members of the scheme. The dividends cannot be transferred into an ISA and should be declared on the members’ individual tax returns.
Subscriptions that do not count towards the annual subscription limits
Funds transferred from a matured Child Trust Fund (CTF) account
When a CTF account holder becomes 18 they can instruct their CTF provider to transfer investments held in their CTF. They can do this by subscription to a Cash, Stocks and Shares, Innovative Finance or Lifetime ISA with their existing CTF provider or another ISA manager.
The account holder does not have to be resident in the UK. A subscription made from a matured CTF account to an ISA must be disregarded for the overall ISA subscription limit.
A subscription made to a Lifetime ISA is subject to the overall Lifetime ISA payment limit.
The holder of a CTF account can instruct their provider to transfer their CTF investments ‘in-specie’ into a Stocks and Shares ISA.
When the holder of a CTF account becomes 18 and does not instruct their CTF provider what is to be done with the investments in their matured account then if the CTF provider is an ISA manager they can make a transfer of cash in a CTF into a Cash ISA or investments in a CTF into stocks and shares ISA. The account holder does not have to be resident in the UK.
The ISA must be held in the name of the CTF account holder, not the Registered Contact for the account. No further subscriptions can be made to the ISA, although income (including interest and gains) on investments can be credited to the ISA.
An ISA subscribed to from a matured CTF account must be included in an ISA manager’s annual return of account information that is made to HMRC within 60 days of the 5th. April, beginning with the tax year ending on 5 April 2021.
Defaulted cash account subscription (cash manager in default)
Where a cash ISA manager is declared in default by either the Financial Conduct Authority (FCA) or the Financial Services Compensation Scheme (FSCS), the investor may make a single defaulted cash account subscription outside of the annual subscription limits to:
- a cash ISA (which could be a new cash ISA opened for the purpose, or an existing cash ISA)
- a stocks and shares, innovative finance ISA, or Lifetime ISA (subject to Lifetime ISA eligibility rules) but the subscription must not breach the ‘one of each type per tax year’ rule or, in the case of a Lifetime ISA the annual Lifetime ISA payment limit
A defaulted cash account subscription can be made whether or not any compensation is paid to the investor, and (except for payments to a Lifetime ISA) whether or not the investor is resident in the UK (see also the residence qualification).
The maximum defaulted cash account subscription is the amount held in the cash account immediately before the default (including any accrued interest). If the defaulted cash account subscription made is less than the maximum allowed, the investor cannot make a later defaulted cash account subscription to make up any, or all, of the shortfall.
Where the defaulted cash account is a flexible ISA the maximum defaulted cash account subscription is the amount held in the cash account immediately before the default (including any accrued interest) plus the amount of any withdrawals in the year of default that had not been replaced. If the defaulted cash account subscription made is less than the maximum allowed, the investor cannot make a later defaulted cash account subscription to make up any, or all, of the shortfall.
Any defaulted cash account subscription made to a Lifetime ISA will count towards the Lifetime ISA payment limit for the year, but not the overall annual ISA subscription limit.
The defaulted cash account subscription must be made in a single payment within 180 days of the default occurring.
Where a non-flexible cash ISA defaults, the investor must give evidence to the ISA manager accepting the defaulted cash account subscription of:
- the amount held in the defaulted cash account immediately before the default occurred, including accrued interest
- where subscriptions (other than additional permitted subscriptions, defaulted subscriptions and Help to Buy ISA reinstatement subscriptions were made to the defaulted cash account in the tax year in which the defaulted cash account subscription is being made:
- the amount of those subscriptions
- the date of the first subscription
Where the defaulted cash account is a flexible ISA the investor must give evidence to the ISA manager accepting the defaulted cash account subscription of:
- the amount held in the defaulted cash account immediately before the default occurred (including accrued interest), plus the amount of any withdrawals in the year of default that had not been replaced
- where subscriptions counting towards the subscription limit were made to the defaulted cash account in the tax year in which the defaulted cash account subscription is being made, i.e. subscriptions other than additional permitted subscriptions, defaulted subscriptions, Help to Buy ISA reinstatement subscriptions, and flexible ISA replacement subscriptions:
- the amount of those subscriptions
- the date of the first of those subscriptions
The evidence the investor could show the manager might include:
- a letter from FSCS confirming the account balance at the date of default
- ISA statement accompanied by information showing the later payments, and withdrawals
- a copy of a passbook
Defaulted cash account subscriptions do not count towards the annual subscription limits and should not be included as subscriptions on annual returns of information. Details of current year subscriptions, including the date of the first subscription, made to the defaulted cash account manager should be included, as they would be if the account was a transfer in.
Defaulted cash account subscriptions made to a Lifetime ISA count towards the Lifetime ISA limit and must be returned as qualifying additions on the ISA managers return.
There is no requirement for ISA managers to accept defaulted cash account subscriptions.
Defaulted investment subscription (compensation paid in respect of a stocks and shares component) and defaulted Lifetime ISA subscription
Where an investor with either:
- a stocks and shares ISA or a Lifetime ISA (in respect of stocks and shares) receives a payment outside the ISA wrapper by way of compensation that is paid in respect of the poor performance, loss (in whole or in part), depreciation (or risk of depreciation) of a qualifying investment
- an innovative finance ISA receives a payment ‘compensation’ outside of the ISA wrapper for one of the following reasons:
- in respect of the poor performance, loss (in whole or in part), depreciation (or risk of depreciation) of a qualifying investment
- as a result of the assignment or novation of a qualifying investment where the borrower defaults
- from a debt collector appointed by the ISA manager to recover debt in respect of a qualifying investment where the borrower defaults
the investor may make a single defaulted investment subscription (or a defaulted Lifetime ISA subscription, where appropriate) outside of the overall ISA subscription limit. This applies whether or not the qualifying investment continues to be held in the ISA at the time the payment is made.
However, defaulted investment subscriptions from a non-Lifetime ISA may only be made to a Lifetime ISA where:
- the investor is eligible to make payments to a Lifetime ISA
- the subscription does not cause the Lifetime ISA payment limit to be exceeded or the ‘one Lifetime ISA per tax year’ rule to be breached
Defaulted investment subscriptions must be made:
- from 6 April 2016 – to a cash, stocks and shares or an innovative finance ISA
- from 6 April 2017 – to any type of ISA
A defaulted investment subscription relating to the default of a Lifetime ISA (a ‘defaulted Lifetime ISA subscription’) can be made only to a Lifetime ISA and will not count against:
- the overall annual ISA subscription limit
- the Lifetime ISA payment limit
- the rule that payments to a Lifetime ISA can only be made by investors who are under 50 years of age
- the ‘one ISA of each type per tax year’ rule
Defaulted investment subscriptions or defaulted Lifetime ISA subscriptions do not include compensation paid for poor customer service. If compensation is not paid, or is paid inside the ISA wrapper, a defaulted investment subscription cannot be made. If the compensation is paid in respect of an investment held in a Junior ISA, the defaulted investment subscription can be made to the stocks and shares Junior ISA held by that investor or to a cash Junior ISA.
The maximum defaulted investment subscription or defaulted Lifetime ISA subscription is the amount of the compensation that was paid. If the defaulted investment subscription or defaulted Lifetime ISA subscription made is less than the maximum allowed, the investor cannot make a later defaulted investment subscription to make up any, or all, of the shortfall.
The defaulted investment subscription or defaulted Lifetime ISA subscription must be made in a single payment within 180 days of the compensation being paid.
The investor must give the following information to the ISA manager accepting the defaulted investment subscription or defaulted Lifetime ISA subscription:
- evidence of the amount of the compensation payment and the date it was paid
- details of the investment in respect of which the compensation was paid
- the full name, address and postcode of the ISA manager who held the investment in respect of which the compensation was paid
- the full name, address and postcode of the person who paid the compensation
Defaulted investment subscriptions or defaulted Lifetime ISA subscriptions do not count towards the annual subscription limits and should not be included as subscriptions on annual returns of information.
However, if a defaulted investment subscription from an account other than a Lifetime ISA will count towards the Lifetime ISA payment limit and must be returned as a qualifying addition on the Lifetime ISA return.
There is no requirement for ISA managers to accept defaulted investment subscriptions.
A flexible ISA is an ISA whose terms and conditions allow the investor to replace, in whole or in part, cash they have withdrawn, without the replacement counting towards their annual subscription limit. No changes are needed to the model application forms in applications and terms and conditions.
Where a withdrawal is made, any subsequent subscriptions in the same tax year that would otherwise count towards the subscription limit will do so only to the to the extent that previously withdrawn amounts have been fully replaced.
Where a portfolio ISA includes a flexible product:
- the portfolio ISA should be reported as flexible
- the flexibility rules, in relation to the withdrawal and replacement of funds, should be applied in relation to the flexible product(s) only
The notification requirements for changing terms and conditions are set out in the FCA’s Handbook of rules and guidance.
Lifetime ISAs cannot be offered as flexible ISAs. Where a replacement subscription from a flexible ISA is made to a Lifetime ISA, this will count towards the Lifetime ISA payment limit (but not the annual overall ISA subscription limit).
Offering flexibility is optional for ISA managers. It is not available for Junior ISAs or Lifetime ISAs. Where a Help to Buy ISA is operated under flexible terms and conditions, replacement subscriptions cannot exceed the monthly Help to Buy ISA subscription limits.
Flexibility can be offered in respect of cash only. It can be offered for cash ISAs and also in respect of any cash held in a stocks and shares or an innovative finance ISA (including from the sale of investments).
Where the terms and conditions of an ISA are changed to offer flexibility from a date other than 6 April, and managers’ systems permit it, withdrawals made from the start of the tax year can be treated as having been made from a flexible ISA. In other words, any subsequent subscriptions in the same tax year that would otherwise count towards the subscription limit will do so only to the to the extent that previously withdrawn amounts have been fully replaced.
No applications or declarations are required in respect of replacement subscriptions, and subject to managers’ terms and conditions replacement subscriptions can be made by non-residents.
Replacement subscription can be made in cash or by shares transferred from a schedule 3 SAYE option scheme or a schedule 2 SIP (see subscription by transfer of shares).
Flexible ISA withdrawals are deemed to be firstly of current year subscriptions, and secondly of previous year funds. Replacements are deemed to be firstly of previous year funds, and secondly of current year subscriptions. Where subscriptions and withdrawals are processed on the same day, a net end of day position may be used where the manager’s system is unable to track the exact time of each transaction.
Managers do not need to establish or record whether a replacement subscription relates to current or previous year subscriptions (or any related income or growth).
Withdrawals of current year subscriptions, can effectively be replaced in any current year ISA, but cannot breach the ‘one ISA of each type per tax year’ rule.
Where a flexible ISA has current year subscriptions only, any withdrawals over and above the amount subscribed – for example, income or capital growth - can only be replaced in that ISA.
Replacement of flexible ISA previous year funds must be made to the account from which the withdrawal was made, and in the same tax year.
Where a withdrawal, or internal transfer, closes a flexible ISA no replacement of any previous year funds withdrawn but not replaced in the current year will be possible unless the manager re-opens the ISA (see when can an ISA be closed).
Income paid away outside of a flexible ISA under the terms and conditions of the account, or under the instruction of the account investor, will count as withdrawals which can be replaced without counting towards the subscription limit.
But monies removed other than by the investor:
- by way of an ISA transfer to another provider
- by HMRC to cover a tax debt
- on the instruction of HMRC to remove invalid subscriptions
- on cancellation
- on the authority of a court order
- to cover fees and charges
- by the ISA manager to cover penalty charges – for example, when the investor makes a withdrawal which breaks the terms and conditions of a fixed term product
are not withdrawals of cash that can be replaced without counting towards the annual subscription limit.
Except for when made to a Lifetime ISA, flexible ISA replacement subscriptions do not count as subscriptions for the purpose of determining whether the investor has subscribed to more than one ISA of the same type, or whether there has been a ‘gap year’ in relation to a continuous ISA application.
Where a flexible ISA is transferred the old manager must provide the new manager with the ‘net’ subscriptions in the current year and the date of the first subscription counting towards the subscription limit. That is, the total subscriptions in the year (disregarding any additional permitted subscriptions, defaulted subscriptions, and Help to Buy ISA reinstatement subscriptions), less any amounts withdrawn. Subject to any subscriptions made to other ISAs in the year, the full balance of the annual subscription limit will be available with the new manager.
Where the ‘net’ subscription is £nil or a minus figure because the investor has withdrawn all the current year subscriptions, the old manager should report £nil current year subscriptions to the new manager and the date of the first subscription counting towards the subscription limit.
The BACS system has a default date of first subscription of 6 April where current year subscriptions are £nil. Where managers systems are unable to override the default date, transfers made in 2017 to 2018 should proceed using the 6 April default date. Managers must make the necessary systems changes for later years.
Where a manager receives a BACS transfer in 2017 to 2018 showing a date of first subscription of 6 April and current year subscriptions of £nil, the manager should not capture or report the 6 April date of first subscription. For later years, the date should be captured and reported.
For ISA managers not offering flexibility, where flexible ISAs are transferred in and their systems do not allow for the capture of a date of first subscription with £nil current year subscriptions, managers can continue to report as per current processes for 2017 to 2018.
Where a flexible ISA is transferred and the ‘net’ subscription is £nil or a minus figure because there have been no subscriptions other than additional permitted subscriptions, defaulted subscriptions, Help to Buy ISA reinstatement subscriptions, and flexible ISA replacement subscriptions (where the investor has withdrawn previous year funds), the old manager should enter X (current year subscriptions not being transferred) in the Type of ISA field on the Transfer History Form. Where the Type of ISA field is reported as X, no entries are required for current year subscriptions or date of the first subscription.
Where a flexible ISA is transferred with ‘net’ current year subscriptions of £nil the ability to replace any current year income withdrawn prior to the transfer will be lost.
Where flexible ISAs are included in a bulk transfer any withdrawals in the year of the bulk transfer but before the date of the bulk transfer – from current year or previous year funds - to the extent they were not replaced before the transfer - can be replaced with the new manager in the year of the bulk transfer without counting towards the subscription limit. Where the new manager does not offer flexibility, he must nevertheless allow replacement without counting towards the subscription limit.
For flexible ISAs, the ‘net’ subscriptions – that is, the total subscriptions in the year (disregarding any additional permitted subscriptions, defaulted subscriptions and Help to Buy ISA reinstatement subscriptions), less any amounts withdrawn should be reported on the annual information returns.
Where the net subscriptions in the reporting year are a negative figure, for example because the investor has withdrawn previous year funds, the manager should report £nil current year subscriptions.
Where the terms and conditions of an ISA offer flexibility, the ISA should be ‘flagged’ on the annual return of information to indicate the terms and conditions permit flexibility. The flag should be used regardless of whether the investor has used the flexibility.
Where a Help to Buy ISA is operated under flexible terms and conditions:
- replacement subscriptions cannot exceed the monthly Help to Buy ISA subscription limits
- withdrawals of current year subscriptions will create current year subscription ‘headroom’ that can be used in another ISA of a different type
Help to Buy ISA reinstatement
Help to Buy ISA is a feature of a cash ISA available from 1 December 2015. Under the Help to Buy ISA rules, an investor can use a cash ISA to save towards their first home purchase and, subject to satisfying certain conditions, they will be eligible for a government bonus payment calculated with reference to how much they have saved. The scheme is administered on behalf of HM Treasury by UK Asset Resolution corporate services (UKARcs).
A Help to Buy ISA is merely a cash ISA and has no identity or special requirements within the ISA rules. While Help to Buy ISAs must follow all the normal cash ISAs requirements, they also need to satisfy additional qualifying conditions (set out by UKARcs in its scheme rules) if the account holder is to be entitled to a government bonus payment.
For an account holder to be eligible for the Help to Buy ISA bonus, funds must be withdrawn from the ISA and the account must have been closed. Where the Help to Buy ISA is a product within a portfolio ISA, it is sufficient that the funds have been withdrawn from, and that product closed.
Where, following the withdrawal and account closure, the house purchase fails, the investor can make a Help to Buy ISA reinstatement subscription up to or equal to the funds withdrawn from their closed account in:
- a cash ISA (which could be the re-opened Help to Buy ISA, a new cash ISA opened for the purpose, or an existing cash ISA)
- a current year stocks and shares, innovative finance ISA or Lifetime ISA that does not breach the ‘one of each type per tax year ‘rule
Other than when made to a Lifetime ISA, Help to Buy ISA reinstatement subscriptions can be made whether or not the investor is resident in the UK. They cannot be made to a Junior ISA.
Help to Buy ISA reinstatement subscriptions can be made to a Lifetime ISA if the investor is resident in the UK and otherwise eligible to subscribe to a Lifetime ISA, but will count towards the Lifetime ISA payment limit (but not the annual overall ISA subscription limit).
Only a single Help to Buy ISA reinstatement subscription can be made in respect of a failed house purchase. The investor cannot spread their reinstatement over a number of different accounts, or to make a number of different reinstatement subscriptions over time. The investor does not have to be resident to make a Help to Buy ISA reinstatement subscription (see the residence qualification) except where the payment is made to a Lifetime ISA.
Help to Buy ISA reinstatement subscriptions must be made within 12 months from the closure date or date of final withdrawal from the Help to Buy ISA. The relevant date will be shown on the purchase failure notice provided by the conveyancer.
Before a Help to Buy ISA reinstatement subscription can be made the investor must provide the ISA manager with details of the amount held in their Help to Buy ISA at the time it was closed and a copy of the purchase failure notice provided by the conveyancer.
Managers can choose not to accept Help to Buy ISA reinstatement subscriptions.