HMRC has revealed details of a new "digital reporting" programme designed to identify taxpayers who are "breaching the limits" of their ISA allowances. Senior officials spoke to MPs ahead of major rule changes coming into effect from next year.
The tax authority said it will soon set out "regulations" to enact an important change to the ISA allowance. At the Autumn Budget 2025, Labour announced that from April 2027 the ISA allowance will be slashed for millions of savers. Currently, savers can put away up to £20,000 each tax year into ISAs, using the allowance however they wish between cash ISAs and investment-based ISAs.
New allowance rules from next year
From next year, this allowance is effectively being cut, so savers will only be able to use up to £12,000 however they want. The other £8,000 will no longer be available for cash deposits, meaning it can only be used for investments. People aged 65 and over will be spared from the new rules and will keep the current allowance.
As the change brings new complexities to the system, the Treasury Committee recently asked what changes are coming in to ensure people are using the new allowances correctly. Jonathan Athow, director general of strategy and policy at HMRC, said: "We are introducing a digital reporting requirement.
"Traditionally the ISA regime was paper-based—or when it was introduced, it was paper-based—and we are digitising that."
Why the digital system is needed
He explained why the new data system is needed: "No single ISA manager can know exactly what everyone is doing, so we have a digital service that we think will enable a better understanding of where people might be breaching the limits and allow us to therefore take action."
Asked how up to date the information will be, he said: "There will be a lag, but I cannot remember the exact parameters. I think we are looking for quarterly data, so it is more frequent than annual. That will allow us to intervene in-year, but I would need to double-check the fact."
Tax charges on top
Another question the MPs asked was what would happen in a case where a person made deposits above their ISA allowances. He said: "We would expect an ISA manager to correct that.
With a particular provider, we would expect them to take money out to make certain it is not exceeding the limits, but there would be tax charges on top if people were breaking the limits."
