This section of our website explains our approach to cases where a consumer has been unable to take up their Individual Savings Account (ISA) allowance in a particular tax year – because of something that a financial business did wrong (or failed to do).
In the cases we see, our usual approach is to tell the financial business to compensate the consumer for any financial loss they are likely to incur – as well as for any distress and inconvenience that may have been caused.
Most cases we see are where a consumer tried to make an investment (or deposit cash) into an ISA towards the end of a tax year (5 April) – but the financial business was unable to carry out the instructions in time.
We also sometimes see cases where this happened when the consumer tried to top up their ISA during the tax year.
In these cases, it means that the consumer was unable to use their ISA allowance (or part of it) for that particular tax year – and could be disadvantaged as a result.
If we are satisfied that it was the financial business’s error that led to the consumer not being able to use their allowance, we will consider whether compensation is appropriate.
There are two types of ISA:
Working out the financial loss that a consumer may have incurred – through missing an opportunity to invest in a stocks-and-shares ISA – is usually more difficult than working out the loss in relation to a cash-ISA.
This is why we focus below mostly on our approach to complaints about missed allowances that involve stocks-and-shares ISAs.
When working out how much financial loss the consumer is likely to incur – through missing an opportunity to use their stocks-and-shares ISA allowance – we generally start by assuming the consumer would have made the same investment at the same price. We then work out how much they would lose out – through not holding that investment within an ISA.
How far the consumer will lose out financially – by not holding the investment within an ISA – depends on:
Consumers who miss out on using their allowance in a particular tax year can often put this right in a later tax year. When we look at how long it will be before a consumer can make good on a lost opportunity to invest in an ISA, we consider whether they:
If a consumer holds an investment outside an ISA, they may be required to pay tax on:
Not all consumers have to pay tax on the returns from investments held outside an ISA. For example, basic rate taxpayers do not usually become liable for extra tax when they receive dividends from their investments.
However, a consumer may be liable to pay tax on an investment held outside an ISA if:
Where we consider it likely that the consumer will have to pay tax on the returns from the investment, our approach depends on the individual circumstances of the case. But unless there is evidence to the contrary, we generally consider it reasonable to assume that:
Consumers sometimes say that they will be liable for capital gains tax – when selling the investment that should have gone into an ISA. In these cases, we look at the consumer’s circumstances – including their investment history – to decide whether we agree this is likely. The amount of compensation we might tell the business to pay in these case would depend on:
Consumers who hold cash in an ISA do not have to pay tax on the interest. So if a contribution is missed, the potential loss is the tax they will have to pay on that interest outside the ISA.
The losses a consumer incurs – by missing an opportunity to invest in a cash-ISA – can usually be calculated by comparing the net interest rate earned by the funds outside the ISA with the gross rate achievable inside the ISA.
Subject to the individual financial circumstances of the consumer, we generally take the view that losses through missing a cash-ISA allowance will be for no more than five years. This reflects the fact that cash holdings are normally used to meet expenses first, rather than cashing in investments.
We also usually assume that during those five years:
A consumer may sometimes limit their loss, by investing in a cash-ISA during a later tax year – using money they would not otherwise have used for this purpose. If it seems likely that the consumer would be able to replace the missed ISA in this way within five years, we will take this into account when working out the appropriate amount of compensation.
We sometimes tell the financial business to pay the consumer compensation for the inconvenience and any distress caused – through missing out on their ISA allowance because of something the business did wrong.
contact our technical advice desk on 020 7964 1400
This is part of our online technical resource which sets out our general approach to complaints about a wide range of financial products and issues. We would like your feedback on how helpful you found it. Please also use the feedback form below to tell us about anything you think we could clarify or explain better.