ISA Bulletin 5

Savings Scheme Office (SSO)

16 October 2008

The ISA Bulletin keeps ISA managers informed of any new developments relating to the ISA scheme. Please ensure the appropriate people in your organisation read it.

We suggest that you keep Bulletins at the front of your copy of the Guidance Notes for ISA managers.

What this Bulletin contains

This bulletin contains an articles on:

  • ISA transfers: Transfer history form
  • ISA transfers: current year subscriptions
  • Stocks and shares ISAs – uninvested cash
  • Recognised stock exchanges – Oslo Axess Market
  • Recognised stock exchanges – Japanese Mothers Market
  • Recognised stock exchanges – BM&F BOVESPA
  • Annual returns of information – form ISACOM100 (OCR)
  • ISA Guidance Notes - amendments

Enquiries on this bulletin should be addressed to:

David Taylor
HM Revenue & Customs (SSO Liverpool)
Room 320

Tel: 0151 472 6156
Email: David Taylor

ISA transfers: Transfer history form

The old ISA manager must give the new ISA manager a notice in writing containing information and a declaration within 30 calendar days of the date of transfer (Guidance 11.16). This form is being renamed Transfer history form to help distinguish it from other transfer forms.

The existing version of the form contains the line 'Any income receivable after the date of transfer will be forwarded' (tick box). We believe that this box is rarely completed. We therefore intend to remove this line from the new version of the form and replace it with a new paragraph 11.18a in the Guidance Notes, which will read as follows.

Income receivedafter the date of transfer

Any income received after the date of transfer should be forwarded to the new manager unless:

  • the old manager has been instructed to pay income received to the investor
  • the income received is less than the minimum the new manager is prepared to accept

If removal of this box will cause you a problem please let us know within the next two weeks.

ISA transfers: Current year subscriptions

The article in TISA Technical Bulletin 540, which was reprinted in ISA Bulletin 3, contained the following paragraph.

If the new ISA manager has already received a subscription in the current year prior to receipt of the Client transfer authority form, and that form indicates that the investor has also subscribed to the existing manager in the current year, then there may be a technical breach of the ISA regulations depending on the type of ISA(s) involved. In this instance, whilst he is not required to do so, the new ISA manager may wish to consider accepting the transfer notwithstanding this breach but will need to verify the amount subscribed to the existing ISA manager because he can only accept a transfer of the current year subscriptions where the resulting aggregate subscription does not exceed the limit (currently either £3,600 if it is a cash ISA – cash ISA transfer or £7,200 if it is a cash ISA – stocks and shares ISA transfer).

Where the resulting aggregate subscription does exceed the limit, the current year subscriptions cannot be transferred although there is nothing in the ISA regulations to prevent the new manager accepting the transfer of any previous year subscriptions.

At that time HM Revenue & Customs (HMRC) had not confirmed its agreement to that proposal. This has now been given and managers should regard this as official HMRC guidance.

Stocks and shares ISAs – uninvested cash

Interest paid on cash on deposit held in a stocks and shares ISA is subject to a flat rate charge of 20 per cent (Guidance 7.51).

We have been asked what stance the manager should apply where the interest paid is less than 5p - should the flat rate charge be rounded up to 1p or down to 0p? We are content for the flat rate charge to be rounded down to the nearest penny.

Recognised stock exchanges – Oslo Axess Market

To qualify for ISA inclusion, a share must be ‘officially listed on a recognised stock exchange’. The current list of Recognised Stock Exchanges includes two sections. The first is a list of stock exchanges designated as 'recognised stock exchanges' by Order of the Board under section 841(1)(b) ICTA 1988 and section 1005 ITA 2007.

The second is a list of countries and states that ‘any stock exchange in the following countries which is a stock exchange within the meaning of the law of the particular country relating to stock exchanges’ is also deemed to be a recognised stock exchange.

The Oslo Axess Market based in Norway is a stock exchange within the meaning of Norwegian law relating to stock exchanges. It is therefore a recognised stock exchange for ISA purposes.

Recognised stock exchanges – Japanese Mothers Market

We can also confirm that The Mothers Market based in Japan is a stock exchange within the meaning of Japanese law relating to stock exchanges. It is therefore a recognised stock exchange for ISA purposes.

Recognised stock exchanges – BM&F BOVESPA

The São Paulo stock exchange was designated as a recognised stock exchange on 11 December 1995. Following a series of mergers, it is now a part of the Bolsa De Mercadorias & Futuros BOVESPA (BM&F BOVESPA).

The Bolsa De Mercadorias & Futuros was not designated as a recognised stock exchange. As a result, only that part of BM&F BOVESPA that is recognisable as the originally designated São Paulo stock exchange will meet recognised stock exchange status.

BM&F BOVESPA has an Over-The-Counter (OTC) market. Shares traded on an OTC market do not meet the HMRC definition of listed. Therefore only shares that are listed on the main market of that part BM&F BOVESPA that is recognisable as the São Paulo stock exchange prior to the merger with BM&F BOVESPA will meet the HMRC definition of listed on a recognised stock exchange.

Managers who are told that a share is ‘listed’ on the new BM&F BOVESPA must therefore establish on which part of the exchange the share is listed on in order to determine whether it meets HMRC interpretation of ‘listed’ on a recognised stock exchange.

Annual returns of information – form ISACOM100 (OCR)

Paragraph 14.16 of the Guidance Notes states that, when completing form ISACOM100 (OCR), amounts subscribed and market values should be rounded up to the nearest pound. For example, £999.99 should be reported as £1,000. However, the form itself says that amounts should be rounded down. This will be changed to ‘rounded up’ the next time the form is updated.

The form also states that the phone number to be used when ordering further stocks is Tel 01726 201 021. The correct number is Tel 0845 900 0404 and this be shown on the form the next time it is updated.

ISA Guidance Notes - amendments

We would like to thank all those who have contacted us with comments, suggestions, and queries on the new Guidance Notes. The following corrections and clarifications will be included in the next version. In the meantime, managers should annotate their copies of the Guidance Notes accordingly.

Paragraph 4.21 to 4.23 (clarification)

We have been asked what action managers should take when, more than 30 days after the written declaration was made (and a copy sent to the investor); they become aware that some of the information provided by the investor in the original application was incorrect.

The manager should not void the ISA. Instead he should simply update his records. But the ISA application will remain valid from the date the original declaration was made.

There is one exception. If, in the original application, the investor declared that he or she did not have a National Insurance number, and the manager becomes aware that, in fact, the investor does have a National Insurance number, the manager should:

  • • void the ISA with effect from the date the original declaration was made (see paragraphs 12.23 – 12.35)
  • • issue a revised declaration, which will re-validate the ISA from the date on which it is made (see paragraph 4.20)

Paragraph 11.33 (clarification)

We have been asked what should happen if the new manager offers a cancellation period and the investor changes his mind and cancels the transfer within the cancellation period. The new ISA is only ‘pending’ and the funds can be returned to the old manager. (However, and as mentioned in paragraph 11.33, the old manager is not required to accept the return of the funds.)

This is particularly important in cash ISA to stocks and shares ISA transfers as it the only way in which the investor can return the funds to a cash ISA. If the new manager does not offer a cancellation period, or the investor changes his mind and tries to cancel after the end of the cancellation period, or investor cancels within the cancellation period, but the old manager refuses to accept the return of the funds, the funds are now in a stocks and shares ISA and cannot be transferred to a cash ISA. In these circumstances, the investor’s options are limited. He can change his mind and leave the funds with the new manager, or he can transfer the funds to another stocks and shares ISA manager. If neither of these options appeal to him, all he can do is close the ISA and withdraw his money.

Paragraph 14.11a (correction)

The phone number to be used when ordering stocks of form ISACOM100(OCR) is incorrect. It should be Tel 0845 900 0404.

Future articles

Part of the purpose of the ISA Bulletins is to clarify areas of the Guidance Notes for ISA managers. If you feel that any aspect of the guidance is unclear you should contact David Taylor on Tel 0151 472 6156.