HMRC has flagged an important reminder to ISA subscribers, warning them about potential charges they might incur if they exceed an annual limit. An enquiry came from a concerned 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?”
Individuals can contribute up to £20,000 annually across various ISAs, including cash, stocks and shares, innovative finance and lifetime ISAs, benefitting from tax-free interest and investment gains. In response, HMRC clarified: “You are likely to incur a charge for the over subscribing. Your ISA manager can advise you on this and the next steps.”
The Government body has previously advised savers who accidentally overpay in the current tax year to engage with their provider to correct the error. But the group also cautioned that for past years’ oversubscriptions, it’s best to wait for HMRC to write to you with instructions.
With only three months until the tax year concludes, ISA deposits may see another influx. They surged last April according to Bank of England figures, hitting a 25-year high for the month.
Looking at current trends, Hargreaves Lansdown’s head of personal finance, Sarah Coles, points out that high interest rates are motivating more savers to use ISAs to avoid a HMRC bill.
She stated: “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. 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 perk of the Lifetime ISA is that 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.