Your ISA allowance
As at tax year 19/20, the yearly ISA allowance is £ 20,000.00. This can be subscribed to one ISA account or a combination of any of the other 4 main types: cash ISA, stocks and shares ISA, innovative ISA, or LISA (only £4,000.00 can be subscribed to a LISA, which forms part of the £20,000.00 allowance).
EXAMPLE
An investor could subscribe, within the same tax year, £ 10,000.00 to a cash ISA, £ 6,000.00 to a stocks and shares ISA and £ 4,000.00 to a LISA.
How will HMRC know if I oversubscribe the £ 20,000.00 limit?
In June each year all ISA providers must send HMRC a report, showing what subscriptions they have accepted from their clients for the previous year finishing April 6th, e.g., in June 2019, ISA providers will report subscriptions for tax year 18/19.
If the investor believes they have oversubscribed, e.g., invested £ 20,000.00 into an innovative ISA with provider A, and, in the same tax year, £ 6,000.00 into a stocks and shares ISA with provider B, then they should contact the provider they subscribed with last.
The ISA provider may be willing to void the subscription, but, HMRC guidelines do advise ISA providers to take no action, and advise the investor that they may be contacted by HMRC, whom may also ask one of the providers to void their subscription.
This is the approach I follow, and I find very few void requests sent by HMRC for oversubscriptions. In practice, HMRC often seem willing to turn a blind to the first time this happens (this is personal experience and, of course, cannot be guaranteed), but, no doubt will not do so if the investor oversubscribes again in future.
Withdrawing Oversubscriptions from a Flexible ISA
If the investor has oversubscribed, but one of the ISA accounts is a flexible ISA, then they can “self-repair” the oversubscription by withdrawing those funds from the flexible ISA account.
EXAMPLE
An investor subscribes £ 20,000.00 into a flexible cash ISA with provider A and £ 5,000.00 into a stocks and shares ISA with provider B.
The investor has oversubscribed £ 5,000.00, which will be reported to HRMC in both provider’s annual reports in June. For flexible ISAs, the provider reports to HMRC subscriptions as: Subscriptions minus withdrawals.
Hence if the investor withdraws £ 5,000.00 from the flexible cash ISA, provider A will report their subscriptions as £ 15,000.00 (instead of £ 20,000.00) and the provider B will report £ 5,000.00, hence HRMC will see their total subscriptions for the tax year as £ 20,000.00 only.
Please note, only cash or stocks and shares can be flexible, and not all providers offer flexible ISAs.