Budget Notes

BN50 INDIVIDUAL SAVING ACCOUNTS AND NORTHERN ROCK BANK

Who is likely to be affected?

1. Investors who withdrew monies from their Northern Rock Individual Savings Account (ISA) between 13 and 19 September 2007 inclusive; and ISA providers.

General description of the measure

2. Legislation will be included in Finance Bill 2008 to allow individuals who withdrew cash from their Northern Rock ISAs between 13 and 19 September 2007 to reinvest them in a new ISA. This measure was announced on 18 October 2007.

Operative date

3. Investors can make the re-investment between 18 October 2007 and 5 April 2008.

Current law and proposed revisions

4. Under the powers in sections 694 to 701 Income Tax (Trading and Other (Income) Act 2005 (ITTOIA), The Individual Savings Account Regulations 1998 (SI 1998 No 1870 as amended) provide the rules and regulations for the ISA scheme.

5. The existing ISA Regulations stipulate that an investor cannot subscribe more than £3,000 to a cash ISA in any one tax year. And they do not, except in the limited circumstances of in-year self transfers by investors, allow for any re-investment of withdrawn funds with another ISA manager other than as a subscription and subject to the annual subscription limit. They stipulate that a transfer can only be made directly between one ISA account manager and another.

6. As part of this measure, the ISA Regulations will be amended so that:

•    Qualifying Northern Rock investors can re-invest their withdrawn funds with the same or a different ISA provider; and

•    The re-investment does not count towards that investor's annual ISA subscription limit.

7. Any re-investment of monies withdrawn from Northern Rock will not have any impact upon an investor's annual ISA investment limit, which is subject to the normal ISA subscription rules. Furthermore, any re-investment made with a new ISA provider is to be treated as a transfer to that provider rather than a subscription.

8. The new rule will apply only to people who withdrew funds from their Northern Rock ISA between 13 and 19 September 2007, and the re-investments have to be made no later than 5 April 2008. This means that the changes to the ISA regulations described above will need to have retrospective effect, but the existing powers in ITTOIA do not explicitly provide for this.

9. So, in order to make the necessary changes to the ISA Regulations the powers in ITTOIA will need to be amended, and legislation will be introduced in Finance Bill 2008 to provide for this. The retrospective power being introduced in the Finance Bill is to have effect only if the use of the power is to the benefit of the taxpayer.

10. The amending ISA Regulations, will be laid as soon as possible after the date that Finance Bill 2008 has received Royal Assent.

11. Details of the Government announcement made on 18 October 2007 can be found on HM Treasury's website at www.hm-treasury.gov.uk

Further advice

12. If you have any questions about this change, please contact David Ensor on 0207 147 2838 (email: david.ensor@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk