Who can invest in an ISA if you're an ISA manager

Who can subscribe to an individual savings account (ISA)

To be eligible to subscribe to an ISA an investor must be an individual, aged:

• 16 or over — if subscribing to a cash ISA

• 18 or over (if subscribing to a stocks and shares, innovative finance ISA, or a Lifetime ISA)

For Lifetime ISAs other age rules apply to payments into the account. An investor may only open a Lifetime ISA under the age of 40 but they may make payments until they reach 50.

The investor must be:

• resident in the UK

• working as a Crown employee serving overseas and paid out of the public revenue of the UK — typically a serving member of the armed forces or a diplomat, if they are not resident in the UK

• married to, or in a civil partnership with, an eligible person

You should note that married and civil partners do not necessarily have the same residence status.

For Lifetime ISAs, only a defaulted Lifetime ISA subscription or a returned Lifetime ISA withdrawal after the failure of a first-time residential purchase may be made by a non-resident investor.

Exceptions for non-resident investors and investors who have subscribed to another ISA of the same type in that tax year, include those who have:

• made additional permitted subscriptions

• flexible ISA replacement subscriptions

• defaulted cash subscriptions

• Help to Buy ISA reinstatement subscriptions

An additional exception for non-resident investors to make subscriptions include those who have defaulted investment subscriptions.

For a Lifetime ISA, an investor can only pay into more than one Lifetime ISA in a tax year to make a defaulted Lifetime ISA payment or to return a Lifetime ISA withdrawal after the failure of a first time residential purchase.

The investor should not have exceeded the overall subscription limit to their ISAs.

Find more about:

• rules on ISA subscriptions

• managing additional permitted subscriptions

• Lifetime ISA withdrawal after the failure of a first time residential purchase

The residence qualification

To subscribe to any ISA the investor must meet the UK residence qualification. The section ‘who can subscribe to an ISA’ provides exceptions to this rule.

The investor can determine their residency status by using the RDR3: Statutory Residence Test. They are either UK resident (regardless of whether split year treatment applies) or not resident for the whole of a tax year.  An online residence indicator is available.

The UK means England, Scotland , Wales, and Northern Ireland. It does not include the Channel Islands or the Isle of Man.

Investors must declare in their applications to subscribe that they meet the residence qualification — read section about applications in writing.

Investors must notify you if they no longer meet the residence qualification because they:

• have become non-resident

• no longer work as a Crown employee serving overseas

• are no longer married to, or in a civil partnership with, an eligible person

If this happens, an existing ISA does not need be closed, but no further subscriptions to the ISA can be made apart from the exceptions to the rule, unless the investor meets the residence qualification again.

If an investor has a continuous application in place and they have been non-resident, there will always be a gap year as the period of non-residence must last for a whole tax year and no subscriptions will be possible for that gap year.

If the investor again becomes UK resident, they will need to make a new ISA application. This does not apply to Lifetime ISAs as the declaration contained within the application form has effect for each year in which the individual makes a subscription to the account.

Residence position not confirmed

When you are notified of a new address overseas, but the investor has not made a declaration that they are non-resident, you can continue to accept subscriptions based on the existing (resident) declaration for the remainder of the tax year of leaving the UK. 

Subscriptions should not be accepted for the following tax year, other than the exceptions to the rule, until the investor has confirmed in writing that they expect to be resident in the UK, by completing a new application (except for a Lifetime ISA).

You will need to let the investor know that subscriptions must not be accepted in the following tax year, and can adopt one of 2 possible approaches:

• from the date that you receive notification of the non-UK address, you can tell the investor that any further subscriptions will be refused unless they confirm they expect to be resident in the UK for the tax year of departure

• you can tell the investor you will continue to accept subscriptions for the tax year of departure unless they tell you they expect to be non-resident for the tax year

Non-UK residence confirmed

Some circumstances result in all subscriptions to an ISA made in that year, including any income or growth relating to those subscriptions, (other than the exceptions) needing to be removed and any Lifetime ISA bonus received for that year returned to HMRC. 

This can happen if the investor:

• declares in-year that they are non-resident — the subscriptions cannot be reinstated after the year end even if the investor later establishes, they were resident

• informs you that they left the UK in an earlier tax year and became non-resident — all subscriptions will be treated as invalid unless they once again become UK resident and complete a new ISA application

• notifies you that they may become non-resident, as this is not a categorical declaration of non-residence, no subscriptions should be removed — only if the investor subsequently confirms that they are non-resident should action be taken

You must always contact HMRC before taking any voiding action. 

The ‘one ISA of each type per year’ rule

From 6 April 2017 investors can subscribe in each tax year to one cash ISA, one stocks and shares ISA, one innovative finance ISA and one Lifetime ISA.

Investors cannot subscribe in the same tax year to 2 or more:

• cash ISAs

• stocks and shares ISAs

• innovative finance ISAs

• Lifetime ISAs

Where the investor transfers current year subscriptions from one type of ISA to another the subscriptions are treated as if they were made to the receiving ISA. For example, if current year stocks and shares subscriptions are transferred to a cash ISA, they are treated as if they made to the cash ISA so the investor is free to subscribe to a stocks and shares ISA following the transfer — subject to the overall subscription limit.

For the purpose of the ‘one ISA of each type per tax year’ rule, other than Lifetime ISA, subscriptions to accounts that do not count towards the overall limit include when you have:

• made additional permitted subscriptions

• flexible ISA replacement subscriptions

• defaulted cash subscriptions

• defaulted investment subscriptions

• Help to Buy ISA reinstatement subscriptions

For Lifetime ISAs, only a defaulted Lifetime ISA subscription or a returned Lifetime ISA withdrawal after the failure of a first-time residential purchase do not count for the purpose of the ‘one Lifetime ISA per tax year’ rule.

In the case of a flexible ISA, 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.

Find more about:

• rules on ISA subscriptions

• managing additional permitted subscriptions

• Lifetime ISA withdrawal after the failure of a first time residential purchase

Investors’ tax returns

Investors do not have to declare income or gains in an ISA on their tax returns, unless the ISA subscription has been made void.

Capital losses in respect of ISA investments are disregarded for the purposes of Capital Gains Tax.

Corresponding deficiency relief is not allowed on life insurance policies within an ISA.

Death of an investor

Any ISA held will be designated a ‘continuing account of a deceased investor’ for the period beginning on the death of the account investor and ending on the earlier of the:

• completion of the administration of the deceased’s estate

• day falling on the third anniversary of the death

• closure of the account

There is no requirement for you to check with the executors of a deceased investor if the administration of the investor’s estate has completed.

No subscriptions, including replacement flexible subscriptions, can be made into a ‘continuing account of a deceased investor’. However, active management of the investments already held within the account may continue subject to the terms and conditions of the account.

Funds held within a continuing account of a deceased investor continue to benefit from ISA tax advantages. Any interest, dividends or gains in respect of investments in a continuing account of a deceased investor are exempt from tax.

A life insurance policy within an ISA will pay out on the death of the investor. The policy remains part of ISA business until a valid claim is made. If interest is paid into the ISA by the insurer because of a delay in paying the claim the interest will be exempt from tax and can be paid or credited without deduction of tax.

If the death proceeds are held 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.

Personal representatives cannot apply to change a stocks and shares ISA into a cash ISA or vice versa with the same ISA manager.

They cannot request the transfer of a ‘continuing account of a deceased investor’ to an alternative ISA manager. However, these accounts can be included as part of a bulk transfer when an ISA manager ceases to qualify or otherwise transfers their ISA book.

If, after a period of 3 years, the administration of the account is ongoing and the account has not been closed, the account will cease to be a continuing account of a deceased investor. In these circumstances, on the next working day following the third anniversary of the deceased’s death, you must remove the ISA wrapper from the account and all subsequent income or gains will then become taxable in the hands of the estate.