HM Revenue & Customs (HMRC) has issued guidance for savers who inadvertently overpay into their Individual Savings Accounts (ISAs), warning that they may face a tax bill on any interest or gains derived from the excess funds.
The warning came after a taxpayer contacted HMRC seeking advice on how to handle an accidental overpayment into their ISA, which had already been partly invested in shares. The current annual ISA allowance is £20,000, which can be split between cash ISAs and stocks and shares ISAs.
HMRC advised the saver to contact their ISA provider first. If the provider cannot rectify the issue, the saver should wait for HMRC to write to them after the end of the tax year. The tax authority stated: “That you pay tax on any interest or gain derived from that excess. This may mean you having to file a self assessment tax return for the tax year, though we'll try to avoid that.”
HMRC clarified that it is the ISA provider’s responsibility to calculate the proportion of gain attributed to the excess. The department will only take action after the tax year ends, once it receives audit data from ISA companies.
For current tax year overpayments, providers can advise the investor to remove the excess and any related gains to correct the error. For previous year overpayments, providers should inform the investor that HMRC will contact them. If HMRC discovers an oversubscription without being notified, it will inform both the provider and the saver of the next steps.
Savers who need to discuss an error with HMRC can call the income tax general enquiries helpline on 0300 200 3300, available Monday to Friday from 8am to 8pm and Saturdays from 8am to 4pm.
