ISA managers could face new penalties if they break ISA rules, according to proposals put forward by HMRC. The taxman is calling for evidence on the proposals, which aim to shake up the existing system due to concerns that it penalises investors for the bad behaviour of their ISA managers. It follows the collapse of mini-bond provider London Capital & Finance in 2019, after it was found to have invested its clients’ cash into unregulated products. HMRC’s proposals, which would apply to all types of ISA, include a £10 fine per compliance breach, per account, multiplied by the number of relevant tax years. Another option would be to introduce a 1% penalty on the value of the investments affected at the end of each tax year. These measures would apply to minor breaches, like not completing ISA transfers within permitted time limits or failing to correctly manage ISA subscriptions. For more significant breaches, HMRC is mulling the introduction of a flat fee of £100 per account per tax year. Alternatively, ISA managers could face a 5% penalty on the value of investments affected at the end of each tax year. These breaches include allowing ineligible investments into the ISA wrapper or failing to notify HMRC of plans to make a bulk transfer of ISA business to another firm. “At the moment some ISA managers repeatedly break the rules and pay the penalty because it is cheaper than fixing their systemic problems,” HMRC said. This has led HMRC to question whether the current approach is robust enough to encourage positive compliance behaviours in the management of ISAs.

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as of December 2021 and the contents of the Finance Bill. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.