HMRC has published a policy paper updating the information on new rules on withdrawals and cash replacements to Individual Savings Accounts (ISAs), introduced in the March Budget 2015, to reflect the new help to buy ISA
Under the new regulations, savers are able to replace cash they have withdrawn from their ISA earlier in a year, without these payments counting towards the annual ISA subscription limit. The updated policy paper also makes clear they are able to reinvest savings they withdrew from a Help to Buy: ISA if an intended house purchase does not proceed, also without these payments counting towards the annual ISA subscription limit.
The Help to Buy: ISA scheme was announced at March Budget 2015 as a way of supporting first time buyers to save for a home deposit, and the account has been available to savers since 1 December 2015. Under the scheme rules, the earliest that a saver could earn a Help to Buy: ISA bonus on their savings is 1 February 2016.
The new flexibility is available in relation to both current year and earlier year ISA savings where provided for in the terms and conditions of a ‘flexibleISA’, but will be subject to conditions in certain cases about which ISA provider can accept replacement amounts. ISA providers can offer this flexibility for cash ISAs and also for cash that is held in stocks and shares ISAs.
HMRC estimates the ISA flexibility changes could affect around 400 banks, building societies and other financial institutions that offer ISAs and are likely to face some development costs.
This includes costs associated with changes to the systems which providers currently use to apply and police the ISA subscription limit. Further alterations will be required to accommodate a change to the way in which the total amount subscribed to an ISA in a year is reported to HMRC. In addition, many providers will need to update their ISA publicity materials and familiarise customer-facing staff with these changes.
After these initial implementation and set-up expenses, ongoing costs for ISA providers are likely to be limited to those associated with processing additional subscriptions and withdrawals that take place following these changes, and reporting to HMRC.
The changes to ISA will reduce the government's tax take by £765m by 2019/20 as a result of the new rules.
Click to read the policy paper, Individual Savings Accounts: increasing flexibility for savers
