Close, void or repair an ISA if you're an ISA manager

ClosingWhen an ISA can be closed

Investors have the right to close their Individual Savings Accounts (ISAs) whenever they want and youthis right must includebe thisincluded right in your ISA terms and conditions.

conditions. Requests do not need to be in writing. YouA can accept a request to close an ISA can be accepted from a third party, but you should make sure the request is valid.

You may close an ISA where terms and conditions allow. For example, you may state in your terms and conditions that you will close an ISA will be closed where the balance falls below a particular level.

If an investor wants to close an ISA, you may leave it open:

• open until the date HMRC pays the final claim to tax
• until is paid by HMRC, or the final claim is made for a Lifetime ISA
• .

  You may also leave it open beyond the 90 day period afterwhere the account was closed on the purchase of first time residential property —to thisallow isany inreturned case funds aredue returnedto ifa thefailed purchase fails

purchase.

You canmay pre-fundsupplement Income Tax that is reclaimable from HMRC to the ISA. To do this:

• use your own resources to supplement income received during the closure period
• make surewith thean amount youequivalent supplement is equal to the tax on that income
• doincome, thisin beforeadvance receivingof the tax being received from HMRC

You cannot(see pre-fundpre-funding theUK governmentIncome bonusTax onreclaimable afrom LifetimeHMRC to an ISA.). ReadHowever, moreyou informationcannot aboutpre-fund pre-fundingthe UKgovernment Incomebonus Taxon reclaimablea fromLifetime HMRC to an ISA.

You may re-open an ISA where it was closed earlier in the same tax year ifand the investor wants to either:

• resume subscriptions
• subscriptions, or make flexible ISA replacement subscriptions for funds from a previous year thatfunds theywithdrawn withdrew in the current year

year. If you re-opendo, thethey ISA, you must report all subscriptions made in the year,year on the annual return of Information, not just thosethe subscriptions made after youthe re-openISA theis account.re-opened.

Where Reada moreLifetime informationISA aboutis annualclosed returnsafter the 30 day closure period (see closure of Informationa Lifetime ISA.) the provision set out in this paragraph does not apply.

An ISA does not have to be have closed because the investor nohas longerceased satisfiesto satisfy the residence qualification. The ISA can remain open and it can be transferred to another ISA manager. However, until the investor satisfiescannot the residence condition again, they can only subscribe to the ISA, by(other usingthan oneby orway more of the following:

• additional permitted subscriptions
• , flexible ISA replacement subscriptions
• , defaulted cash account subscriptions
• and defaulted investment subscriptions
• , and Help to Buy ISA reinstatement subscriptions

until the residence condition is satisfied again.

For a Lifetime ISA, an existing account does not need to be closed but no further payments can be made —– other than:

• than a defaulted Lifetime ISA subscription
• and a returned Lifetime ISA withdrawal after the failure of a first time residential purchase

.

Bankruptcy of an investor

Under the Insolvency Act, a bankrupt’s estate vests in a trustee immediately on theirhis appointment taking effect.effect In(or, in the case of the Official Receiver, this is on themhis becoming a trustee.trustee).

If you’re notified of the bankruptcy of an investor,investor you must close the ISA with effect from either the date:

• date on which the trustee’s appointment takes effect
• when (or, in the case of the Official ReceiverReceiver, becamethe adate trustee

on which they become trustee).

Where the account is a Lifetime ISA, you must deduct the 25% withdrawal charge and pay it to HMRC when you close the account.account Thisis doesclosed not(other applythan in the following cases:

• where the investor is aged 60 or over
• over, or you’ve received the appropriate terminal illness evidence in relation to the investor

).

ClosingDormant dormant accounts

Since 1 February 2011, a cash ISA maythat behas ahad relevantno dormanttransactions accountcarried ifout forby 15 years or moreon therethe haveinstructions beenfrom nothe transactions:

• carriedaccount outholder byfor the15 accountyears holder
• carriedor outmore, onmay instructionsbe froma therelevant accountdormant holder

account. You can close the account and transfer the balance of a dormant cash ISA to Reclaim Fund Ltd. Find out more on the Reclaim Fund Ltd websiteLimited.

Junior ISAs cannot be relevant dormant accounts and you cannot closebe them.closed by ISA managers.

Account holders or personal representatives of a deceased account holder who contact you about their closed ISA, have a right to repayment of the balance from Reclaim Fund Ltd.

The repayment of the balance from Reclaim Fund Ltd is not liable to tax. It will not form part of the investor’s annual ISA allowance if it’s paid back into the original cash ISA or cash ISA with the ISA manager.

Recovered funds from the dormant assets scheme can now be placed into any type of ISA without countingchanging towardsthe annual subscription limit. Subscription limits will not apply to cash and stocks and shares ISAs. Recovered funds are subject to the annual subscription limit except if they’re put into a Lifetime ISA.

Death of an investor

When an investor died on or before 5 April 2018

TheAny savingsISAs held cease on the date of adeath. deceasedAny investorinterest, candividends continueor togains benefitfor frominvestments in their ISA that arise (which in general terms means ‘paid’) after the date of death to the date of closure are not exempt from tax advantages(see death of an investor on or before 5 April 2018 regarding ISA, for thepolicies periodof beginninglife insurance).

But there is no loss of exemption on interest, dividends or gains which arise before the deathdate of death, including any gain treated as arising as a result of the accountdeath of the investor under the rules for investments in policies of life insurance and endingincluding any Lifetime ISA bonus due on qualifying additions made to the earlieraccount of:on or before the date of death.

• While an ISA ceases on the completiondeath of the administrationinvestor who died on or before 5 April 2018, the regulations are silent on what must happen to the account itself. You can remove the ISA wrapper and allow the account to continue, or the funds could be transferred to another account. The particular treatment will depend upon the terms and conditions for the account.

  For the purposes of determining whether a claim can be made for income received under deduction of Income Tax, the deceased’simportant estate

• date is the daypayment fallingdate shown on the thirdtax anniversaryvoucher. ofYou can claim the death
• tax deducted if the closurepayment date is on or before the date of death.

  If you have received payment from HMRC for a claim to tax on income that is no longer exempt from tax you must repay HMRC, normally by deducting the account

amount from the next claim under the heading ‘Adjustments to previous claims’.

When an investor dies on or after 6 April 2018

The savings of a deceased investor can continue to benefit from the tax advantages of an ISA during the administration period of the estate. Any interest, dividends or gains for investments in a continuing account of a deceased investor that arise (which in general terms means ‘paid’) after the date of death to the date of closure of the ISA are exempt from tax.tax (see when an investor dies on or after 6 April 2018).

Find out how to manage additional permitted subscriptions into an ISA

Interest on cash on deposit for accounts where the account investor died on or before 5 April 2018

In strictness interest on cash on deposit (including un-invested cash in a stocks and shares ISA) paid or credited by you after the date of death is not exempt from Income Tax.

From 6 April 2016, there has been no need for banks, building societies and deposit-takers to deduct Income Tax from interest paid or credited on or after 6 April 2016.

But where notified of death after 5 April 2016, there is no need to revisit, and deduct tax from interest paid after the date of death and prior to 6 April 2016. You should, however, notify the personal representatives of any interest accrued and paid after death.

Any subscriptions paid into any ISA account after the date of death of an investor should be removed, along with any interest accrued on those subscriptions.

Remaining payers of yearly interest should continue to deduct Income Tax at the basic rate and account for the tax due by including it on their next CT61 return form, or deducting the tax from the next claim made. If returns or claims are not being made, a cheque should be sent to HMRC (see annual returns and claim).

In practice, however, you may apportion interest paid after the date of death into:

• interest accrued up to and including the date of death, which can be treated as arising in the ISA (and therefore not liable to Income Tax)
• interest accrued from the date of death, which is not exempt from Income Tax and where appropriate, for example if paid or credited before 6 April 2016 should be paid under deduction of tax at the basic rate

Until 1 July 2014, interest paid for un-invested cash in a stocks and shares ISA was subject to the 20% flat rate charge.

Interest on cash on deposit for accounts where the account investor dies on or after 6 April 2018

When an ISA investor dies on or after 6 April 2018, the ISA can continue to benefit from the ISA tax advantages during the administration period of the investor’s estate. The ISA is designated as a ‘continuing account of a deceased investor’.investor’ (see when an investor dies on or after 6 April 2018).

Any subscriptions paid into any ISA account after the date of death of an investor should be removed along with any interest accrued on these subscriptions.

FindSee outa howworked toexample manageof additionalinterest permittedon subscriptionsa intocash deposit where an ISAinvestor has died (PDF, 121 KB, 1 page).

Interest on ISA investments

When an ISA investor dies on or before 5 April 2018

Interest for ISA investments (for example, an interest distribution from an Authorised Investment Fund, or an interest payment from a corporate bond) paid or credited after the date of death is withinnot exempt from Income Tax. The interest is not apportioned.

Where the payment is received under deduction of tax, you’ve claimed the tax and have received payment from HMRC you must repay the tax to HMRC (see death of an investor).

Where the payment is received gross, you only need to tell the personal representatives that they must account for any tax that may be due.

When an ISA wrapperinvestor anddies ison exemptor fromafter Income6 Tax.April For2018

Interest for ISA investments (for example, an interest distribution from an Authorised Investment Fund, or an interest payment from a corporate bond.bond) paid or credited after the date of death is within the ISA wrapper and is exempt from Income Tax.

If you receive any income that’s net of tax,tax then you should claim repayment of any tax deducted in the usual way from HMRC. You and the personal representatives of the deceased investor’s estate do not need to do take any further action.

Information to be given to personal representatives

When an ISA investor dies on or before 5 April 2018, You should give personal representatives a statement showing:

• the market value of the investments, other than insurance policies (see rights conferred by insurance policies), held in the ISA at the date of death, or in the case of a cash ISA, the value of the ISA at the date of death and the gross interest payable in the year of death up to date of death
• the original cost price and date of acquisition of any investments bought after the date of death
• details of any income received with a payment date after the date of death
• the date of disposal and the amount of the net sale proceeds received for each disposal made after the date of death
• where appropriate, a tax certificate (R185) or Section 975 ITA 2007 certificate showing interest received and tax deducted

A generic voucher template is available. If you cannot use the voucher template you may use your own design subsidiary tax certificates. However, before doing so you should submit drafts of the proposed certificates for approval to the Collective Investment Schemes Centre.

Rights conferred by insurance policies

Rights conferred by an insurance policy held in an ISA vest in the personal representatives on the death of the investor. The ISA policy must pay out on the death of the investor and personal representatives must not delay in claiming.

Where a delay in payment of a claim under a life insurance policy results in interest being paid to the personal representatives, the insurer should, where appropriate, deduct tax at the basic rate from the interest paid if the investor died on or before 5 April 2018 and notify the personal representatives of the amount of interest and any tax deducted.

When an ISA investor dies on or after 6 April 2018 and interest on a delayed payment of a claim under a life insurance policy is paid into a ‘continuing account of a deceased investor’, the insurer should not deduct tax from the interest paid. If the death proceeds are held by the insurer outside of the deceased’s ISA pending settlement of the claim then any interest paid by the insurer should have tax deducted at the basic rate.rate of 20%.

RepairingHow to repair an ISA

You may find an ISA is invalid. Examples of invalid ISAs are the:

• investments held in the account are non-qualifying
• investor is not a qualifying individual
• subscription to the account is invalid

Invalid accounts can, in certain circumstances, continue as ISAs after being corrected, this is known as a ‘repair’.

Invalid accounts that cannot be repaired must be voided.

Where Thecash accountISA shouldsubscriptions beare closedrepaired withor thevoided, lossthere ofis allno taxrequirement exemptions.

Followingfor banks, building societies and deposit-takers to deduct Income Tax from interest paid or credited on or after 6 April 2016 (following the ending of the Tax Deduction Scheme for Interest (TDSI),)). thereOther ispayers noof requirementyearly forinterest banks,should buildingcontinue societies and deposit-takers to deduct Income Tax fromat the basic rate.

For interest paid or credited whenbefore cash ISA subscriptions6 haveApril been2016 repairedyou should deduct Income Tax at the basic rate under TDSI, or voided.from yearly interest as appropriate, and account for the tax due on their next CT61 return form. If returns are not being made, a cheque should be sent to HMRC (see annual returns and tax claims).

Where tax has been deducted and reclaimed from HMRC on interest payments for a stocks and shares ISA, you must repay the tax to HMRC.HMRC (see death of an investor).

In all cases investors must be made aware that there may be more tax to pay and that income removed from the ISA for periods after 6 April 2016 will count towards the investor’s personal savings allowance.

Two types of invalid account can be repaired:

• where the ISA is invalid because of an inadvertent failure in the checks that should be carried out by you (manager error), you can sometimes repair the account
• where an ISA is invalid because the investor (investor error) has:
  • subscribed to a disallowed combination of ISAs (2 or more ISAs of the same type)
  • exceeded the overall subscription limit

The invalid subscriptions to the ISA can sometimes be repaired in full or in part. Check ‘Investor error’ ISA repair and ‘Investor error’ ISA part repair..

A valid ISA can also be repaired if the investor exceeds the overall subscription.

An Checkinvalid ‘ISA repairthat —cannot validbe combinationrepaired ofmust ISAsbe butvoided overall- subscriptionthe limitaccount exceeded’.should be closed with the loss of all tax exemptions.

‘Investor error’ ISA repair

In most cases investors who have subscribed to a disallowed combination of ISAs or have exceeded the overall subscription limit are not aware that they have made an error until it’s found during the HMRC compliance programme, which examines the annual returns submitted by ISA managers. InYou thisand case,the HMRCinvestor compliancein officersthis case will informbe youinformed andof the investorerror ofby theHMRC error.compliance officers.

IfWhen you find out (from(usually from the investor) that theythe haveinvestor has subscribed to a disallowed combination of ISAs, or has exceeded the overall ISA subscription limit, you should telladvise the investor that HMRC will contact them in due course. You should not give any advice to customers, as you may not have all of the relevant facts or be certain of the action that HMRC will take.

If the investor wishes to contact HMRC to discuss the error, they can phone the IncomeISA TaxHelpline.

An generalISA enquiriesis helpline.eligible for repair if it’s either:

• invalid because the investor has subscribed to a disallowed combination of ISAs
• it has exceeded the overall ISA subscription limit

An ISA is not eligible for repair if it’s invalid because:

• the investor did not satisfy the residence qualification at the time they made the subscriptions were made
• the investor was under age at the time they made the subscriptions —were checkmade who(see caninvestors subscribeunder to an ISA18 )

If you find out that the investor has subscribed to an ISA while not satisfying the residence condition, or when under age, you must void the invalid subscriptions.

‘Investor error’ ISA self transfer

ISA investors must transfer their ISAs through the you. Investors cannot transfer an ISA by closing it and opening a new ISA with the new ISA manager (commonly known as ‘self-transfer’).‘self-transfer’), They cannot do this even if theythe areinvestor is moving from one ISA product to another with the same manager.

Self-transfer is not available for Lifetime ISAs.

InHowever, some cases subscriptions to a second ISA may be valid if all the following apply:where:

• the investor subscribes to 2 cash ISAs, in the same tax year
• subscriptions to the first ISA subscribed to were valid
• all of the current year subscriptions to the first ISA subscribed to were withdrawn (whether or not that ISA was closed) before subscriptions to the second ISA were made

ThisThe issubscriptions alsoto the second ISA may be valid, subject to the followingguidance requirements:below.

• the

  The first cash ISA to be self-transferred in a tax year is validvalid, and does not need to be repaired

• therepaired.

  The second (and any subsequent) self-transferred cash ISA is not valid and is not eligible for repair

• repair.

  theThe first cash ISA may either:

  • be closed and all the funds held in the ISA withdrawn,withdrawn including(including any subscriptions for earlier years
  • years) or the first cash ISA may remain open and after the self-transfer will hold only subscriptions which were made in previous years

years. If the first cash ISA remains open, no further subscriptions can be made to it in the tax year of the self-transfer.

See worked examples of repairs and voiding.

ISA repair —– disallowed combination of ISAs or overall subscription limit exceeded

In each tax year an investor may subscribe to one cash ISA ofand eachone type.stocks Checkand theshares ‘oneISA (see – the ‘one-type-of-ISA-a-tax-year’ ofrule). eachFrom type6 perApril year’2016 ruleinvestors have also been able subscribe to an innovative finance ISA.

IfFrom 6 April 2017 investors have also been able to subscribe to one Lifetime ISA if they subscribe to a:

• disallowed combination of ISAs (2 – or more - ISAs of the same type) in the same tax year, the subscriptions to the second (and subsequent) ISA are invalid
• single cash ISA, a single stocks and shares ISA, and a single innovative finance ISA, but exceedexceeds the overall subscription limit, the subscriptions which cause the limit to be breached lead to that ISA being invalid
• a single cash ISA, a single stocks and shares ISA, a single innovative finance ISA, and a single Lifetime ISA but exceedexceeds the overall subscription limit, the subscriptions which cause the limit to be exceeded lead to that ISA being invalid —- with the proviso that, where they have not also exceeded the Lifetime ISA payment limit, the excess must be removed from the accounts which are not Lifetime ISAs —– even where the Lifetime ISA was first subscribed to later in that tax year than any of the other ISAs

In general, the invalid subscriptions can be repairedrepairedas as long as the total subscriptions in the tax year do not exceed the overall subscription limit, or for Lifetime ISAs they do not exceed the Lifetime ISA payment limit.

When totalling subscriptions, thosesubscriptions to an ISA withthat awas validvalidly self-transferself-transferred (repairs —– self transfer) are ignored unless the invalid subscriptions were used to buy an insurance product in(see whichpart caserepair), when they cannot be repaired.

See Forworked moreexamples informationof checkrepairs partand repairvoiding.

ISA repair —– valid combination of ISAs but overall subscription limit exceeded

An investor can subscribe to aone validcash combinationISA, ofone ISAsstocks and shares ISA, and one innovative finance ISA (a valid combination) but exceed the overall subscription limit. An otherwise valid ISA will then become invalid during the tax year by reason of oversubscriptionoversubscription.

In Mr James’s case (see worked examples of repairs and voiding (PDF, 152 KB, 9 pages)), the investor has a Cash ISA with Candobank and a Stocks and Shares ISA with Megafund. That is not a disallowed combination of ISAs. His infringement is to exceed the overall subscription limit. The ISA with Megafund is that one that received the subscription that caused the overall limit to be breached so is the invalid account but it can be repaired.

All tax relief (Income Tax and Capital Gains Tax) on the oversubscriptionsubscription of £15,200 made to this account will be lost up to the date of the HMRC ‘repair’ letter.letter, Followingbut following repair, when the excess subscription of £3,400 is removed from the ISA, the balance of the accountsubscription (£11,800) is exempt from tax. All income earned on the oversubscriptionsubscription of £15,200 before the date of the notice of repair is subject to tax but only the income on the excess subscription has to be removed from the ISA.

WhereHowever, awhere LifetimeMr ISAJames has also been subscribed to,to a Lifetime ISA the excess must be removed from the accounts which are not Lifetime ISAs in date order.order This– applies even where the Lifetime ISA was first subscribed to later in that year than any of the other ISAs.

ISA repair —– removal of excess subscriptions

There are 3 situations in which excess subscriptions must be removed from an ISA.

• The first is where the investor subscribes to a valid combination of ISAs, but subscribes more than the overall subscription limit in total

• total.

  See repair – identification of investments where the subscriptions were used to buy insurance.

  The second is where the investor subscribes to an invalid combination of ISAs and(more theythan subscribeone ISA of the same type) and subscribes more than the overall subscription limit in total

• total.

  See repair – identification of investments where the investor:subscriptions were used to buy insurance.

  • The third is where the investor subscribes to a valid combination of ISAs

  • , does not exceed the overall subscription limit
  • does exceedbut exceeds the Lifetime ISA payment limit

limit. In thethis caseinstance of exceeding the Lifetime ISA payment limit, the Lifetime ISA must be repaired and excess subscriptions must be removedremoved. fromIn it.this Theinstance the excess subscriptions were not valid subscriptions.subscriptions Thisand means they may therefore be removed without the application of a withdrawal charge. Any government bonus that has been paid must be returned to HMRC.

See worked examples of repairs and voiding.

ISA repair —– action by the manager

The HMRC compliance unit will write to the investor before instructing you of the action to be taken. The investor will have been given the opportunity to query the information provided to HMRC before HMRC write to you. In all cases the HMRC compliance unit will issue a notice of discovery to you saying which ISAs can be repaired, and to what extent. They will also inform the investor of the action to be taken by you.

You should not repair an investor error without a notice of discovery. The date of the notice is the date of repair of the invalid ISA.

All investments in a repairable ISA lose their tax exemption from the date of the first invalid subscription up to the date of repair. Up to this date the repairable ISA is effectively treated in the same way as a void ISA.

Subscriptions to a repaired ISA for years other than that covered by the notice of discovery are not affected by that notice.

The following paragraphs provide more details, but in summary, where an ISA is repaired or voided, you should proceed as follows:

• interest earned on cash should be taxed in accordance with repair and voiding

• where you have received net income and havehas claimed tax back from HMRC (for(see for example REIT payments in Property income distributions), you must repay the tax to HMRC and pay income net to the investor

• where you received gross income, you should pay the income out gross to the investor

• the government bonus mustmust, in the first instance, be deducted for Lifetime ISAs from the balance in the account —- where the balance is notinsufficient enough to recover the government bonus inany full,outstanding HMRCpart thereof may usebe anrecovered assessmentby againstHMRC theby investorway toof recoveran anyassessment outstandingagainst amountthe investor

In all cases youinvestors must tellbe investorsmade aware that there may be more tax to pay.pay Youand must also tell them that income removed from the ISA for periods after 6 April 2016 will count towards theirthe investor’s personal savings allowance.

ISA part repair

This is where income (arising prior to date of repair) is to be taxed and some of the invalid subscription and the associated (taxed) income has to be removed from the ISA.

1.First:

• Cash For cash ISAsISA - any interest earned by the invalid subscription ispaid taxed.  
    on Foror stocksbefore 5 April 2016 is taxed

• Stocks and sharesShares ISAsISA - follow the advice for: 

  • interestat arising on cash: repair —– action by manager  
  • other interest:for interest arising on cash and Interest on ISA investments for other interest

  2.Second, Removeremove from the ISA that element of the invalid subscription that the partial repair notice says must be removed.

  3.Third, Removeremove from the ISA that portion of the income that relates to the element of the invalid subscription that must be removed.

  From the date of repair the excess subscriptions are not held in an ISA. The balance after removal of the excess is treated as having been held in the ISA from the date of repair.

  Within 30 days of the date of the notice you should identify the investments bought with the excess subscriptions and remove them from the ISA., Youtogether shouldwith also remove any income arising on those investments. If the investments include insurance, the investor should decide which investments toshould remove.be Checkremoved voiding- ansee ISAvoiding.

  YouWhere interest is credited to a stocks and shares ISA, you should follow the guidance on Interest on ISA Investments and proceed as follows:

  • where athe stockspayment was received under deduction of tax, you have claimed the tax, and shareshave ISAreceived ispayment creditedfrom withHMRC, anyyou ofmust repay the following:tax to HMRC

    • interest
    • interest

      where distribution

    • propertythe incomepayment distributionis received gross, you only need to tell the investor that they must account for any tax that may be due

    Where an interest distribution or property income distribution is credited to a stocks and shares ISA, you should follow the payment:advice on interest on ISA investments and proceed as follows:

    • where the payment was received under deduction of tax, you have claimed the tax, and have received payment from HMRCHMRC, — you must repay the tax to HMRC

    • where the payment is received gross, you only need to tell the investor that they must account for any tax that may be due

    ISA repair —– identification of investments

    OftenIn many cases identification of the investments acquired with invalid subscriptions will be simple.simple The– the investor will have made one subscription to the account and bought one type of investment.

    SometimesIn some cases identification of the investments acquired with invalid subscriptions will be more difficult. You orand/or the investor can select the investments that represent the invalid subscriptions.subscriptions, You can do this using one of the following methods.

    The simplest method toof identifyidentifying the investments is to take a fraction of the investments held in the ISA at the date of repair torepresenting represent the invalid subscriptions.

    Another method is to follow the subscriptions through the account and identify the relevant investments.

    Identification of investments removed from a repaired ISA applies only for ISA purposes. The investor must apply normal Capital Gains identification rules to disposals of investments forprior both:

    • disposalsto maderepair, beforeand repair
    • to disposals made asof partinvestments ofto effect the repair
    repair.

    If the ISA contains an insurance product, and any of the excess subscription to be removed to the ISA is assigned to that insurance product, it must be removed in full. An insurance policy cannot be repaired: it must either all stay in the ISA or all be removed. ReadSee policies of life insurance.

    See worked examples of repairs and voiding.

    Voiding an ISA

    Where an ISA cannot be repaired it must be voided. This is where an invalid subscription and all income earned on the invalid subscription has to be removed from the ISA. Valid subscriptions made in both earlier and later tax years are not affected.

    All of the income earned by the invalid subscription should be removed from the ISA.

    Since 6 April 2016 tax has not been deducted by ISA managers from interest earned on invalid ISA subscriptions. The interest earned counts towards an investor’s Personal Savings Allowance.

    All of an invalid subscription is removed from the ISA. However, if an investor has a Lifetime ISA excess subscriptions can be removed from the ISAs which are not Lifetime ISAs in date order. This means that the investor can keep their Lifetime ISA and will not incur the withdrawal charge that would be charged if excess subscriptions are removed from a Lifetime ISA.

    Where a stocksStocks and& sharesShares ISA or innovativeInnovative financeFinance ISA is made void it does not mean that the investments must be sold. If the ISAs terms and conditions allow, you can transfer the investments to the investor.investor An(a exception is a void ISA policy of life insurance which must be terminated and cannot be transferred to the investor.investor).

    An ISA opened with a continuous application (see applications in writing) is strictly invalid for both:

    • the year in which the terms of the application are breached
    • breached, and for all succeeding years
    years.

    This means that an investor who opens an invalid ISA in a tax year with a continuous application, and who continues to subscribe to that ISA in the next tax year, should have 2 year’s ISA subscriptions voided.

    In practice, an ISA opened with a continuous application can be treated as if the application had been completed on the date that the first subscription is made to the ISA in each tax year.

    See worked examples of repairs and voiding.

    ISA repair and voiding —– transfers and withdrawals

    Where an account is voided or repaired you need to recover any Income Tax claimed on investments bought with the invalid subscriptions.

    YouIf, must write to HMRC if, after using any cash balance and the sales proceeds from investments, there areis insufficient funds in the account.

    Thisaccount could(because, happen, for example, if:

    • the investor has withdrawn funds
    • thefunds, accountor has been closed
    • the account has been closed, or transferred to another manager

    Whenmanager), you must write to HMRC, youproviding must provide details of the amount of tax credit or tax on interest that has not been recovered.

    Withdrawals from an ISA prior to the date of the notice of discovery can be counted towards the amount of invalid subscriptions that must be withdrawn to repair the ISA. Youprovided canthat only do this if the withdrawal does not pre-date the date of the invalid subscription.

    However, in the case of flexible ISAs, any replacement subscriptions must also be taken into account. Other than this, the investor or manager can select the investments that are to be withdrawn.

    See worked examples of repairs and voiding.

    ISA repair and voiding —– accounting for tax

    Any tax claimed from HMRC Repayments on income arising on the invalid subscriptions, must be repaid by the provider.provider, This is normally done by deduction from the next claim under the heading ‘Adjustments to previous claims’.claims’ .

    If the ISA is a cash ISA and the manager is a building society or deposit-taker any tax charged on interest paid or credited before 6 April 2016 on the invalid subscriptions (see full repair, part repair and voiding) must be accounted for on their next CT61 return form. If returns are not being made, a cheque should be sent to HMRC (see basis of annual returns and tax claims).

    In all cases youinvestors must tellbe investorsmade aware that there may be more tax to pay.pay Youand must also tell them that income removed from the ISA for periods after 6 April 2016 will count towards theirthe investor’s personal savings allowance.

    ISA repair and voiding —- information to be provided to investor

    You should inform investors of:

    • the date and amount of theeach following.

      Whereincome investmentspayment werereceived for the investments bought with the invalid subscription or of investments were transferred to the ISA:

      • , and the amount of tax deducted from those income payments - and, if the investments have since been sold, the date and amount of each income payment received for thosethe replacement investments
      • and the amount of tax deducted from those income payments
      • the originaldate costand priceamount of any interest paid or credited on cash deposits for the investmentsinvalid subscription, the amount of any tax deducted from that interest, and that interest paid after 6 April 2016 will count towards their personal savings allowance
      • the original cost price, any incidental costs of acquisition
      • the and date of acquisition

      If theof investments havebought beenwith disposedinvalid of:

      • thesubscriptions dateor oftransferred disposal
      • to the amountISA ofand, if they have since been sold, the saleoriginal proceeds
      • cost price, any incidental costs of theacquisition disposal

      Ifand thedate investmentsof haveacquisition sinceof beenthe sold,replacement youinvestments

    • the shoulddate alsoof providedisposal, the sameamount detailsof for the replacementsale investments.

      Whereproceeds interestand wasany paidincidental orcosts creditedof ondisposal cashof depositsinvestments forbought thatwith invalid subscription:

      • subscriptions or transferred to the dateISA andand, amountif ofthey interesthave paidsince orbeen credited
      • sold, the amountdate of anydisposal, taxamount deductedof fromthe thatsale interest
      • thatproceeds theand interestany paidincidental willcosts countof towardsdisposal theirof personalthe savingsreplacement allowanceinvestments

      If the ISA contains an insurance product, you will need to findascertain out the amounts of any gains treated as arising soin thatorder youto can calculate how much tax to deduct.

      Youdeduct, and must inform the investor of the:

      • amount of premiums paid and the date on which they were paid
      • amount of part withdrawals and the date on which each was made
      • and also, for each part withdrawal, the date of the last day of the ‘year’ as defined in section 546(4) ICTA 1988 in which the part withdrawal was made
      • amount of tax deducted for each part withdrawal
      • benefits payable on death, maturity or surrender and the date of the event
      • amount of tax deducted for the benefits payable on death, maturity or surrender
      • amount of benefits actually paid to the investor, after all deductions of tax

      You should telladvise the investor to report details arising for the void subscriptions for the tax year in which they arose to their tax office.office Theyof should report the followinginterest, details:

      • interest
      • dividends
      • dividends, chargeable gains
      • and allowable losses and corresponding deficiencies

      Find more(see information in chargeable events.

      Where) requestedarising byfor the investor,void yousubscriptions shouldfor givethe them:tax year in which they arose.

      • You should supply tax certificates R189K

      • and/or Section 975 certificates
      • (or their own tax vouchers

      These certificates- orinformation vouchersto shouldbe show:

      • provided to personal representatives) on request to the investor showing, respectively, the dividends
      • and tax credits
      • and the gross interest credited
      • and any tax deducted
      deducted.

      See worked examples of repairs and voiding (PDF, 152 KB, 9 pages) for more information.