Guidance

Tax-free savings newsletter 12 — May 2024

Published 15 May 2024

1. Individual Savings Account (ISA) manager guidance

The updated ISA manager guidance is now available, including the model application forms.

1.1 Subscriptions to multiple Individual Savings Accounts (ISAs) of the same type

From 6 April 2024 the restriction on subscribing to only one ISA of each type per year has been removed, however all subscriptions must remain within the overall ISA subscription limit of £20,000.

There are some exceptions to this change, which means:

• investors with a Lifetime ISA (LISA) are still restricted to subscribing to one LISA a year
• investors with a Junior ISA (JISA) are still restricted to subscribing to one of each type in a year
• under 18s affected by the transitional arrangements are not permitted to subscribe to more than one cash ISA in a tax year

This change is not mandatory and managers can choose to limit subscriptions to only one ISA of a type in any tax year for accounts held with them.

ISA managers remain responsible for ensuring the overall ISA limit is not exceeded for subscriptions made to them.

ISA managers cannot know if investors are subscribing, or have subscribed, with other ISA managers, nor the amount of any such subscriptions. Individual investors remain responsible for managing their overall subscription limits.

When reporting to HMRC, if an investor holds more than one ISA with the same manager, the ISA manager must include details of each ISA separately. This includes where there are multiple separate ISAs of the same type.

1.2 Application forms — continuous applications

From 6 April 2024, customers will not need to reapply where there has been a gap in subscriptions. ISA regulations require that the year of application is specified on an ISA application form. Managers can satisfy this requirement by either:

• including the tax year on the application form (as provided for in the template)
• being in receipt of a clearly signed and dated application form

If an ISA manager receives an application form that is signed and dated in the year the subscription is made, but before the start of the tax year, it will be assumed the application is for the year of subscription.

This change is not mandatory, and managers can choose to require an application form for any tax year in which a subscription is made to them.

Where no subscriptions were made in a previous tax year, and a customer wishes to subscribe from 6 April 2024, HMRC will not require them to complete a fresh application form.

Managers may choose to require a declaration from investors where there has been a gap in subscriptions to ensure that investor details are current and correct. This is not a requirement of the ISA regulations, but may help managers meet other rules, such as accurate reporting.

Where a non-UK resident who is permitted to subscribe to an ISA (for example, a UK Crown Servant serving overseas) has a gap year in subscriptions, and wishes to start subscribing again, managers are expected to carry out due diligence to ensure they are eligible to subscribe. There are no plans to implement any mandatory requirements for these cases.

1.3 Cash ISAs — transitional arrangements for 16 and 17 year olds

From 6 April 2024 it is not permitted for anyone aged 17 and under to subscribe to a cash ISA. This is a mandatory change with transitional arrangements which end at midnight on 5 April 2026.

If, on 5 April 2024, an individual is 16 or 17 and does not have an existing cash ISA, they will be eligible to apply for, and subscribe to, a single cash ISA in any tax year until their 18th birthday. 

Where an individual aged 16 or 17 holds an existing cash ISA, they may continue to subscribe to it or transfer it to another cash ISA after 6 April 2024.

16 and 17 year olds may only subscribe to one cash ISA in any tax year until 5 April 2026. A current year cash ISA may only be transferred in full. Cash ISAs from a previous year may be transferred in whole or in part, and there is no restriction on the number of previous year cash ISAs that may be held.

ISA managers should continue to use the current model application forms on GOV.UK for applications relating to 16 and 17 year olds until 5 April 2026. Managers may continue to use existing application wording.

1.4 ISA transfers — current year subscriptions transferred in full

A ‘full transfer’ relates to the complete transfer of the current year’s subscription, or the transfer of an account (including all previous year and current year subscriptions) which is subsequently closed.

The receiving manager is responsible for reporting current year full transfers to HMRC. The transferring manager should not report any current year subscriptions they received from the investor prior to the transfer. The transferring manager must provide current year subscription information to the receiving manager. The receiving manager should report the detail of the current year subscriptions transferred in, together with any subsequent subscriptions.

1.5 ISA transfers — current year subscription partially transferred

A ‘partial transfer’ relates to a transfer of part of the current year or previous year subscriptions, where the originating account is not subsequently closed.

When reporting current year partial transfers to HMRC, the transferring manager should report all current year subscriptions they received from the investor prior to the transfer. The receiving manager should report all current year subscriptions they receive from the investor after the transfer date.

Additional amendments to ISA regulations will clarify the following:

• subscriptions may be transferred in whole or in part to an account belonging to the account investor
• partial transfers of current year subscriptions do not require the existing manager to provide details of the current year subscription to the new manager

ISA managers should follow the revised ISA manager guidance pending that clarification.

1.6 Acceptance of partial transfers of current year subscriptions by ISA managers

This change is not mandatory, and managers do not have to offer a transfer (in part), or accept a transfer (in part or in full). If an ISA manager chooses to offer partial transfers of current year subscriptions, this should be set out in the terms and conditions of the account.

Where current year subscriptions are transferred in full, and previous year subscriptions remain with the transferring manager, that transfer should be treated as a full transfer.

The rules that apply to LISA and JISA transfers are unchanged.

1.7 Flexible ISAs — multiple accounts

Flexible ISA withdrawals are deemed to be firstly of current year subscriptions, and secondly previous year funds. Replacement subscriptions are deemed to be firstly of previous year funds and secondly current year funds. Where there are previous years’ subscriptions in the account, and a withdrawal reduces the current year’s subscription to less than nil, the negative flexible balance can only be replaced with that same ISA manager, to that same account, within the same tax year.

1.8 Flexible ISAs — partial transfers

The withdrawal and replacement of funds within a tax year is dependent on the current year’s subscriptions with that ISA manager.

Any funds withdrawn, whether previous year, current year, or both, can only be returned to the same account with the same ISA manager — if the investor returns them to a different account, then they will count as a fresh subscription.

Only funds replaced that take the subscription balance above £0 will count as a current year subscription.

The original manager should still provide the new manager with current year net subscriptions and date of first subscription where it is a full transfer.

Tax free savings newsletter 11 has been updated to reflect these changes.

1.9 Long Term Asset Funds (LTAFs) and funds with extended redemption periods

Managers are free to choose which qualifying investments they offer. Investments that can usually be held in a stocks and shares ISA but cannot be liquidated within 30 days, are eligible to be held in an Innovative Finance ISA. This includes LTAFs and Open Ended Property Funds.

The underlying investment must follow the rules set out within the stocks and shares ISA guidance, with the exception of the liquidity rules.

The regulation change was designed in such a way that Innovative Finance ISAs can hold funds with extended redemption periods such as LTAFs, but will also encompass Open Ended Property Funds, and similar investments.

A Long Term Asset Fund (LTAF) is treated as an authorised fund for the purposes of the ISA regulations, depending on the constitution of the LTAF. We understand that some ISA managers have concerns over this approach. We are working with trade bodies to ensure the ISA regulations appropriately reflect that LTAFs are a qualifying investment for the Innovative Finance ISA from 6 April 2024.

Where an investor wishes to buy an LTAF using funds from an existing stocks and shares ISA investment, and the ISA manager offers both stocks and shares ISAs and Innovative Finance ISAs then, providing the investor has completed an application form for both ISA types, money can be transferred between the two ISAs. Such transfers do not require the completion of an ISA transfer form by the investor.

Where current year subscriptions are transferred in full the ISA manager must report them as being subscribed to the appropriate ISA type. This also applies to investors who wish to sell an LTAF and buy an investment in their stocks and shares ISA.

1.10 Withdrawal of ISA manager approval

HMRC can withdraw approval from an ISA manager, either in full or in part, if it has reason to believe the manager is either:

• failing, or has failed to manage ISAs in accordance with the regulations
• not qualified to act as an ISA manager

From 6 April 2024, where an approved account manager has failed to open any ISA account within 18 months of being approved as an ISA manager, then HMRC may withdraw approval. Where, for example, a manager is authorised to offer both ‘cash’ and ‘stocks and shares’ ISAs but has not offered and opened a cash ISA in the last 18 months, HMRC would only consider withdrawing the cash ISA element of their authorisation.

Withdrawal of approval does not prevent firms from re-applying to HMRC to become an ISA manager.

1.11 Funding the purchase of a first-time residential property with a LISA

As of 6 April 2024, for the purchase of a residential property to qualify for a charge free withdrawal from a LISA, the purchase must be funded by a loan that is secured by a charge over the land by way of a legal mortgage (in England and Wales). That ‘loan’ does not include a loan made by a person who is connected to the account investor. ‘Connected’ has the meaning given by section 993 of Income Tax Act (ITA) 2007 and includes:

• a spouse or civil partner
• a relative (as defined at section 994)
• the spouse or the civil partner of a relative of the individual or their spouse or civil partner

In the case of guarantor mortgages, the loan must be funded by a financial institution such as a bank or Building Society and not an individual.

1.12 EU and European Economic Area (EEA) based ISA managers without UK base

ISAs and Child Trust Funds (CTFs) were designed to be compliant with EU law and provide equivalent application of the rules for citizens and financial institutions in EU and EEA states. Currently, ISAs and CTFs may be managed by an authorised European institution without a presence in the UK if they appoint a UK based tax representative. At Spring Budget 2023, the Government announced it would restrict eligibility to manage ISAs and CTFs to financial institutions with a UK presence.

With effect from 6 April 2024, ISA and Child Trust Fund (CTF) provider eligibility is restricted to UK based managers. Where a non-UK based ISA or CTF manager holds accounts at that date, they may undertake a ‘group transfer of accounts’ to a UK based entity within their corporate group. Alternatively, they may undertake a bulk transfer to another ISA or CTF manager.

1.13 Oversubscriptions

ISA managers are reminded that where an oversubscription occurs in the current tax year, you can advise the investor that the excess and any related gains can be removed to correct the error. If the oversubscription occurred in previous years, you should tell the investor that HMRC will contact them in due course.

The only exception to this is for a LISA, where the ISA manager must contact HMRC. Managers do not need 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 exceed the overall subscription limit.

1.14 Compliance

HMRC appreciates that there are numerous changes for ISA managers to implement and that it may take time for managers to adapt to the amended regulations. HMRC’s audit procedure is an iterative process, and HMRC will work with ISA managers under audit to consider and address any issues arising from the changes.

2. Individual Savings Account (ISA) and Junior ISA manager returns

The deadline for filing your annual return of ISA account information and ISA and JISA statistical returns for the tax year ending 5 April 2024 is 4 June 2024.

Find more information about:

• making annual returns of ISA account information
• annual returns of ISA statistical information
• annual returns of JISA statistical information

3. Lifetime ISA (LISA)

3.1 First payment date

As with all ISAs, the opening date of a LISA is the date the first payment is made to that account not the date the account is opened by an investor.

Therefore, a LISA can only be created once an ISA manager has received a valid subscription (funds) from the investor.

Creating an account without funds can lead to Application Programming Interface (API) issues with the first subscription date. Investors may be unaware an account has been created and attempt to open and subscribe to another LISA.

Find more information on first payment dates.

LISA managers are reminded that changing the payment date across different tax years can lead to API issues.

3.2 API requests

HMRC has identified lots of requests being put through at the same time which is not allowing the API to process the claim properly and this has resulted in 503 errors.

LISA managers should endeavour to space out their claims as this will eliminate API issues and allow claims to be processed efficiently.

4. Child Trust Funds (CTFs)

4.1 Instructions post closure of matured Child Trust Fund (CTF)

We would like to remind providers the legal ownership of the CTF account must be transferred to the account holder on their 18th birthday, other than where there is a Power of Attorney or equivalent. The account ceases to be a CTF on that day.

Only the holder of a matured CTF account can instruct their account provider to:

• withdraw the whole of their account
• withdraw part of their account and reinvest the remainder in an ISA
• transfer the whole of the cash amount held to one or more accounts
• transfer all the proceeds from realised investments to one or more other accounts
• transfer ‘in-specie’ all the investments held to another account including an ISA with the CTF provider

It is possible for a CTF manager to transfer the maturing CTF to a protected ISA managed by them, until an instruction is received from the holder.

4.2 CTF returns of information for 2023 to 2024

The deadline for filing your annual return of information for the tax year ending 5 April 2024 is 4 June 2024.

You must report details of all CTF accounts you managed during the return period, including CTFs transferred in, and where the child has died. Details of CTF accounts transferred to another provider do not need to be reported to HMRC.

The annual CTF return can only be submitted to HMRC electronically. For each CTF managed during the period, the return must include the:

• child’s unique reference number
• type of account
• registered contact for the account (if there is one)
• aggregate market value of the investments held under the account at 5 April 2024
• total cash subscribed to the account during the return period ending on 5 April 2024

Find more information about CTF returns of information in the Child Trust Fund guidance notes for providers.