ISA Reinstatement (Failure of Financial Firms)
(Limited Text - Ministerial Extracts only)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
I am today announcing the Government’s intention to make changes to the ISA rules that will benefit investors whose ISA savings have been affected by the failure or default of a financial firm. This includes ISA investors affected by the collapse of Lehman Brothers.
Under current ISA rules, an individual can pay into their ISA a total amount up to the relevant subscription limit each year. The 2011-12 subscription limit for “adult ISAs” is £10,680, of which £5,340 can be in cash.
Where an ISA is affected by the failure or default of a financial firm, any reinstatement of sums held in the account at that point, or investment of any subsequent compensation received, is currently treated as a new ISA subscription, and therefore counts towards the normal annual limit.
We intend to change the ISA rules to permit investors affected by such a failure or default to make certain ISA investments over and above the normal subscription limits.
We intend that investors who have lost their cash ISA will be permitted to reinstate up to the balance of their account at the time of the firm’s failure in a new ISA, outside the normal subscription limits.
Where a stocks and shares ISA has been affected, we intend that the investor will be permitted to invest any compensation (or any similar payment) derived from assets held within their ISA in a stocks and shares ISA, outside the normal subscription limits.
We propose to apply different arrangements for cases in which Lehman Brothers was, at the time of its collapse, the sole counterparty to an ISA product. Affected investors will be permitted to reinstate up to the balance of their ISA at the time of this collapse, outside the normal subscription limits. This is irrespective of whether any compensation has been paid to the investor.
Further details can be found in the HM Revenue and Customs ISA bulletin, published today—a copy of which I have placed in the Library. I have asked HM Revenue and Customs to consult ISA managers and other interested parties on the detailed rules required to implement these changes. I anticipate that draft amending regulations will be made available for consultation in the new year, and that finalised regulations will be laid in spring 2012.
The changes we intend to make will provide a principles-based approach which—together with the Financial Services Compensation Scheme’s deposit guarantee scheme and other compensation arrangements—will enable investors whose ISAs are affected by the failure or default of a financial firm to continue to benefit from tax-advantaged savings. They also demonstrate the Government’s commitment to ensure that the ISA remains a secure, accessible and tax-advantaged saving product.