HMRC alert over 'extra charges' for ISA savers if you cross this limit
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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.
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.
