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Goalposts moved as duplicate Isas get hit by big penalties

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&#39s 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&#39s 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.”


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