The Inland Revenue has finally made a decision on how it will deal with
duplicate Isas after months of deliberation.
The problem became apparent shortly after Isas were introduced in April
1999, when the Revenue realised that thousands of investors were
misunderstanding the rules and taking out both mini and maxi Isas within
the same tax year.
Many of the people who fell into the duplicate trap were those who were
unwittingly sold mini cash Isas by their bank as well as buying a maxi Isa.
Although Isa application forms require the investor to state they have not
taken out and will not take out another Isa within the same tax year, many
did not read the small print.
The Revenue's decision, which is estimated to affect up to 85,000
investors, at first seems very logical. Where two Isas were taken out in
the same tax year, the second one will become void. The provider will be
forced to debit their client for the subsequent tax bill and pay the
While some investors may feel hard done by, having been sold mini cash
Isas when they thought they were opening a simple savings account, it also
seems unfair that several thousand investors should be given extra tax
breaks because they did not read the small print.
But, instead of simply voiding the second Isa for the tax year in which
the client took out two plans, the Revenue has gone one step further and
decided to void the second Isa for all years it has been in existence.
Most Isa application forms include a clause which states: “I apply to
subscribe for a maxi/mini Isa for the tax year X and each subsequent year
until further notice.” But even on these continuous application forms, the
Revenue is now telling the manager to void subsequent years, meaning some
investors could stand to lose three years of tax benefits.
The Pep and Isa Managers Association has been infuriated by the decision,
not least because the Revenue began to send out letters to providers a few
weeks ago without previously announcing its decision or consulting the
It points out that investors using continuous applications are usually
people investing larger sums of money over a number of years, such as those
using an Isaas a mortgage repayment vehicle. To these investors, losing
three years of tax breaks could come at a considerable cost.
Pima chief executive Peter Shipp says: “On behalf of our members, Pima has
already made strong representations to the Inland Revenue on the grounds
that this is a change from previously established practice relating to Pep
subscriptions made using similar continuous applications.
“We are asking the Revenue whether a method of repair known as simplified
voiding could be used to minimise the loss to the investor in such cases.
Pima has already succeeded in winning agreement from the Revenue to
consider the points raised in respect of future years and is committed to
finding a long-term solution to this problem.”
A potential legal battle between the Revenue and providers could now be
brewing. While the void Isa contracts do include a signed declaration from
the investor that they have not taken out any additional Isas within the
same tax year, the continuous applications also include a similar clause
for subsequent years. As a result, providers are likely to argue that the
Revenue has no right to void the following years as well.
Providers would like the Revenue to have overlooked the whole problem. The
administration costs of sorting out the void Isas will inevitably fall
mostly on the providers, which in many cases would not have known they had
sold a void Isa.
Pima is continuing to lobby the Revenue but has suggested that providers
should use annual rather than continuous application forms. But Pima
concedes this will lead to higher administration costs.
Pima says it hopes to meet with the Revenue again after the general
election, when it will raise this point as well as continue its usual
campaign to extend the lifetime of Isas.
It is also lobbying for a complete redesign of what it calls the failed
Individual Pension Account.
IFAs are unlikely to have many, if any, clients who have fallen into the
duplicate Isa trap and most will be glad that the strongest message to
emerge is that it is worth taking advice before investing.
But most IFAs have not liked the attitude of the Revenue, which appears
heavy-handed and acting contrary to the whole point of Isas, which is the
Government's intention to get more people saving.
Simpsons partner Andrew Merricks says: “I think it is outrageous. I do not
see how the Inland Revenue can penalise people for their subsequent Isas.
“This has all been brought about by taking away Peps and Tessas and
general Government tinkering. However, if people take advice, then they are
made aware of these kind of things.”