ISA Bulletin 6

6 November 2008

Savings Schemes Office

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 articles on:

  • the arrangements that have been put in place for compensation payments which will be made to ISA customers of Icesave by the Financial Services Compensation Scheme (FSCS), and
  • reinvestment into an ISA.

Icesave customers who receive compensation from the FSCS will be able to maintain their ISA tax advantages.

Enquiries on this bulletin should be addressed to:

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

Tel: 0151 472 6156
Email: David Taylor

Arrangements that have been put in place for compensation payments by the FSCS

The FSCS announced on 24 October 2008 that ISA customers of Icesave will get back their savings through an accelerated process. In addition, the tax-free status of their ISA accounts will be maintained if the savings are reinvested with another ISA manager by 5 April 2009.

The compensation will be paid via an electronic process using the bank or building society account that was nominated by the individual for the purpose of transferring and receiving funds to and from the Icesave account at the time they opened it. The process will be phased, so that over the next three to four weeks, individuals will be contacted and invited to initiate the payment process. Individuals should receive their compensation within five working days of completing this process.

Some customers will not be able to take part in the electronic payment process, for example, if they do not have a nominated account set up. These customers will be sent application forms from mid November 2008 onwards. This non-electronic process will be slower but FSCS aim to complete it as far as possible within six weeks of receipt of a completed application form.

Reinvestment into an ISA

ISA account holders will be paid the principal sum and interest accrued up to and including 7 October 2008. For those customers who take part in the electronic payment process, within two weeks of receiving compensation, an ISA certificate should follow by post to ISA investors. Where customers are not able to take part in the electronic payment process an ISA certificate will be provided with their payment.

This will enable them to reinvest some or all of the ISA money with another ISA provider by 5 April 2009. This certificate will show:

  • full name
  • permanent Address
  • date of birth
  • National Insurance number (if they have one)
  • information about the ISA being reinstated, including the amount that can be reinstated in another ISA (This will include interest.)
  • amount subscribed to Icesave in 2008-09 and the date of first subscription

Individuals who receive the certificate will be told that they should give the certificate to their new ISA provider by 5 April 2009 if they wish to reinstate their ISA savings, and that they should ask for an ISA transfer form from their new ISA provider.

ISA providers wishing to receive deposits from these customers will need to:

  • Obtain the original certificate from the individual, and retain it (or an imaged copy).
  • Treat the amount deposited as a transfer in, which could be made up of current year and/or previous years' subscriptions. This will mean that the work should be dealt with by the section that receives transfers rather than by counter staff.
  • A single deposit up to the maximum shown on the certificate can be accepted up to and including 5 April 2009.
  • ISA managers must monitor the current year subscription limit in the normal way taking account of any subscriptions previously made to Icesave in 2008-09. The new manager must report the subscriptions made to Icesave in the same way that they would report current year subscriptions received with any other ISA transfer.

Please note:

It is up to ISA managers whether or not they will accept these transfers from customers of Icesave under these arrangements.

All Icesave ISAs were cash ISAs. Individuals may transfer money saved in previous and current tax years from cash ISAs into stocks and shares ISAs. Therefore stocks and shares ISA managers can accept transfers from customers who have received compensation in respect of Icesave cash ISAs.

Individuals will be able to subscribe additional funds to their reinvested ISA, subject to the usual subscription limits. So if the Icesave certificate shows 2008-09 subscriptions of £2,000 the investor can subscribe a further £1,600 (in addition to the sum shown on the certificate) before 5 April 2009.

It is possible that some individuals will have subscribed in 2008-09 to both Icesave and the ISA manager with whom they wish to reinvest their compensation. Annex A sets out what managers should do in this eventuality.

Annex A

Prior to presenting the certificate to an ISA manager, the investor has made current tax year subscriptions of £2,000 to a cash ISA with that manager. The Icesave certificate shows £3,000 was subscribed to the Icesave ISA in 2008-09; so the aggregate subscription in the current tax year is £5,000, which exceeds the £3,600 cash ISA subscription limit.

Under current HM Revenue & Customs guidance the new manager would have to refuse to accept the transfer of the current year subscription in this scenario (see ISA Bulletins three and four). Instead, however, the investor and manager should simply agree to reduce the amount of Icesave current year subscriptions paid into the new ISA by £1,400, thus ensuring that the current year subscription limit is observed. The new manager would then report £3,600 as the subscription for 2008-09 on their annual return of information.

The new manager should also document the fact that the amount of current year subscription they accepted was less than that stated on the Icesave certificate.

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. His telephone number is 0151 472 6156.