The taxman has issued an alert to ISA investors, flagging up potential penalties for breaching the £20,000 yearly threshold. An individual enquired with HMRC, wondering: “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? “.
Deposit limits permit savers to put aside up to £20,000 per annum in various ISAs—these include cash, stocks and shares, and the innovative finance or Lifetime ISAs, all safe from tax on interest and investment gains.
Reacting to the saver’s question, HMRC advised: “You are likely to incur a charge for the over subscribing. Your ISA manager can advise you on this and the next steps.”
Get breaking news on BirminghamLive WhatsApp
HMRC previously suggested to a customer that, in order to deal with any excess paid into an ISA during the current tax year, contacting your provider to eliminate the surplus is the way forward.
For past tax years, avoid DIY solutions: HMRC will reach out regarding any discrepancies. With the tax year drawing to a close soon, many are eyeing their ISA caps, underscored by Bank of England figures showing ISA deposits surging each April, reports the Mirror.
Personal finance expert Sarah Coles underlines a growing trend towards ISAs as protective shields against tax amidst high interest rates.
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.”
She added, “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.”
She also highlighted one benefit of the Lifetime ISA, saying it offers a 25 per cent bonus on deposits up to £4,000 a year, potentially adding up to £1,000 to your savings. However, she warned that these funds must be used towards a first home or can only be accessed after turning 60, otherwise a 25 percent penalty applies.