The Individual Savings Account (Amendment No. 3) Regulations 2002

Explanatory Note

(This note is not part of the Regulations)

These Regulations further amend the Individual Savings Account Regulations 1998 (S.I. 1998/1870). The principal effects of the amendments are to provide relief for some of the common (and straightforward and often inadvertent) breaches of the compatibility rules governing the taking out of maxi and mini Individual Savings Accounts (“ISAs”). The three situations dealt with are:

• if a saver subscribes to an ISA and in the same tax year, closes it and uses the proceeds to make the first subscription to a second account with another manager, instead of requesting the first manager to transfer the first account to the second manager), the second ISA is technically invalid. The amendment will allow the second account to be repaired, and consequently attract tax relief, under the Third Condition in the inserted regulation 4A(1). And for ISAs subscribed to from 6th April 2003, the second account will not be invalidated at all (the inserted regulation 4B);

• where a saver subscribes a capital sum from a matured TESSA to an ISA which breaches the compatibility rules, that ISA will be able to be repaired so that the TESSA capital can remain in it (the Second Condition in the inserted regulation 4A(1)); and

• where a saver subscribes to an incompatible combination of mini and maxi ISAs, the first invalid ISA can be repaired to the extent that neither the overall subscription limit for a maxi ISA, nor the subscription limits for any component, are exceeded (the Fourth Condition in regulation 4A(1)).

Regulation 1 provides for citation, commencement and effect, and Regulation 2 for interpretation.

Regulation 3 inserts regulation 4A into the principal ISA Regulations, providing for the repair of invalid accounts as mentioned above, from 8th January 2003.

Regulation 4 inserts regulation 4B into the principal ISA Regulations, providing for automatic relief for the first occasion in a tax year where a “transfer” is incorrectly carried out (as mentioned in the first bullet above), on or after 6th April 2003.

Regulations 5 and 6 simplify the rules for ISA applicants with mental incapacity.

Regulation 7 makes amendments to the rules for account managers to make annual and quarterly returns of information relating to ISAs, requiring the reporting of the closure dates of mini-ISAs and TESSA only ISAs.

Regulation 8 makes a technical amendment to the reporting requirements for insurers where a policy of insurance held in an ISA breaches the terms of the Regulations.