HMRC has issued a warning to ISA savers about the potential charges they could face if they exceed an important annual limit. A query was raised with the tax authority by an individual who asked: “If I over deposited into my ISA (£4,000 over the £20,000 limit) would I be liable to pay taxes on any gains I made from that £4,000 within my stocks and shares ISA?”
Savers are allowed to deposit up to £20,000 each year into various ISAs, including cash, stocks and shares, innovative finance, or Lifetime ISAs. All of these accounts are tax-free with regard to interest earnings and investment growth.
HMRC responded to the saver: “You are likely to incur a charge for the over subscribing. Your ISA manager can advise you on this and the next steps.” In a previous response to a customer, HMRC advised that if you overpay into your ISA for the current tax year, you should contact your provider to remove the excess funds and rectify the mistake.
Pension savers told ‘don’t miss substantial rebate’ as deadline days away
Haven holiday parks unveils expansion of JD Wetherspoon pubs on these sites
However, if the oversubscription occurred in a previous tax year, it’s best not to try to fix it yourself as HMRC say they will contact you regarding the issue. With the tax year end approaching in three months, many savers may be looking to maximise their ISA contributions.
Bank of England data showed a significant spike in ISA deposits last April. Sarah Coles, head of personal finance at Hargreaves Lansdown, has highlighted that with current high interest rates, savers are increasingly turning to ISAs to dodge tax bills from HMRC.
She said: “Although savings rates have fallen from the peak, there are a number of accounts offering just shy of 5 percent. It means many more people worrying about tax on savings, which has pushed cash ISAs up the agenda for millions of savers.
ISA savers could face extra charges
(
Image:
Getty)
“Concerns about potential tax changes in the Budget played their part too, with more savers realising the benefits of being able to protect their savings from the whims of successive chancellors.”
One benefit of the Lifetime ISA is it offers a 25 percent bonus on deposits up to £4,000 a year, potentially adding up to £1,000 to your savings. However, these funds must be used towards a first home or can only be accessed after turning 60, otherwise a 25 percent penalty applies.