HMRC issued penalties worth £800,000 to over 300 savers last year for breaching ISA rules, according to figures obtained via a Freedom of Information request by The Telegraph. The taxman collected more than £3 million in taxes and fines over the last three years.
Fines and Errors
In the 2024-25 tax year alone, HMRC earned £1.3 million from fines, with 326 account holders penalised at an average of £9,448.32 per person. Common mistakes include failing to use HMRC's official ISA transfer process when moving money between providers and withdrawing money from a Junior ISA before a child turns 18. Financial advisers have described the fines as a "tax on confusion".
Expert Reactions
The findings come ahead of changes to cash ISAs next April, after former Chancellor Rachel Reeves slashed the annual allowance from £20,000 to £12,000. Holly Mackay, founder and chief executive officer of Boring Money, accused the Treasury of "cutting off its nose to spite its face." She said: "There is a huge push to get more consumers to invest. Yet Boring Money data show that 42 per cent of cash-only savers say that simplicity is the most important thing they’d look for if choosing an investment product. ISAs are supposed to be simple. But the four main variants have four different contribution amounts for different ages, and now we will have different levies on cash held and rules on qualifying products. It’s pretty pointless complexity which will deter more people from investing – if we keep going like this, ISAs will become as riddled with complexity as pensions, which is bad news."
Rachel Vahey, head of public policy at AJ Bell, warned that the changes could see some avoid savings accounts in favour of cash. She said: "Pre-election promises signalled the chancellor’s ambition to simplify ISAs and boost retail investing. Consumers could have been granted the freedom to move seamlessly from saving to long-term investing had the government scrapped the arbitrary distinction between Cash and Stocks and Shares ISAs. Unfortunately, the opportunity for radical simplification has been missed. Rather than minimise friction between saving and investing, these reforms reduce flexibility, entrench the divide between cash and investment accounts and introduce tax charges and complex age-related allowances. Riddled with unintended consequences, the reforms do little to encourage new investors. Faced with increasingly complex ISA rules, many would-be investors will stick with what they know: cash."
HMRC Response
An HMRC spokesman said: "ISAs play an important role in helping people save and invest efficiently, and we provide clear guidance to help savers and Isa providers comply with the rules. Where breaches are identified, we work with ISA providers to correct errors and, where appropriate, penalties may apply. Anyone who believes a penalty has been charged incorrectly has the right to appeal."
