Following our briefing on 6 March, Changes to the ISA Regulations, HMRC has now issued the final provisions which will be effective from 6 April 2015. The Guidance Notes for ISA Managers (the Guidance Notes) have been updated to include a new Section 6A and the amendments to the ISA Regulations are set out in The Individual Savings Account (Amendment No.2) Regulations 2015 (the Regulations).

The final provisions generally follow the draft Regulations and Guidance Notes published in late February, although there is one key difference. The draft Regulations stipulated that any additional permitted subscriptions could only be made to an account with the same ISA manager that held the deceased’s ISA. Following discussion within the industry the final provisions state that such subscriptions can be made to any ISA manager that will accept these subscriptions.

Where surviving spouses or civil partners are entitled to an additional allowance with a number of ISA managers because the deceased spouse held an ISA with more than one ISA manager, they will be able to invest with each ISA manager or (subject to the new manager agreeing to accept such subscriptions) choose the ISA manager(s) they wish make their additional permitted subscriptions to.

This means that ISA managers will need to have operational processes in place to make sure that the overall allowance is not breached and potentially to pass relevant information on to any new ISA manager to whom the allowances is transferred.

One provision in the draft Guidance Notes and Regulations which caused concern amongst ISA Managers related to the obligation on investors to provide evidence that they were married to or in a civil partnership with the deceased at the time of death. ISA managers were required to retain a copy of this evidence. This has been left out of the final provisions and will be a welcome relief to ISA managers.

The Guidance Notes contain details of the subscription processes and the information and declarations that will need to be provided by the surviving spouse/civil partner. An industry model application form will also be attached to the Guidance Notes.

ISA managers proposing to allow additional permitted subscriptions will need to fully consider the final Regulations and Guidance Notes and the impact that these have on any existing or proposed client documentation, such as terms and conditions and on-boarding packs, and internal operational processes. We can assist with these discussions and related drafting where required.

Proposed changes to ISAs announced in the Budget announcements on 18 March 2015

The Budget announcements on 18 March proposed further changes to ISAs. We have summarised these below but much of the detail remains to be finalised:

  • A new ISA scheme is proposed to help first time buyers. For every £200 that an investor saves in their 'Help to Buy' ISA the Government will add a further £50, up to a maximum of £3,000. Although investors will be able to treat this as a normal ISA and withdraw money for other purposes, the additions made by the Government will only be available when the money is used to make a home purchase. This scheme will only be applicable to purchases of homes up to £250,000 or £450,000 in London. It is proposed that this scheme will be made available from autumn 2015.
  • From autumn 2015, savers will have more flexibility to withdraw and replace money in their ISA in the same tax year without it counting towards their annual ISA subscription limit. This is provided that the repayment is made in the same tax year as the withdrawal. Currently, any money taken out of an ISA loses its tax free status.
  • It is proposed that the list of qualifying investments for ISAs is extended to include investments such as listed bonds issued by a co-operative and small and medium sized enterprise securities (not just equities) admitted to trading on a recognised stock exchange.
  • From April 2016 a new 'personal savings allowance' will reward savers by not taxing the first £1,000 of savings income for basic-rate taxpayers, and the first £500 for higher-rate taxpayers. Additional-rate taxpayers will not benefit. For those who will benefit from this proposal, cash ISAs may become less attractive.