All chapters: CII FA5 - Individual savings accounts (ISA) administration

Question 1

How much can be subscribed to a cash ISA in the 2024/25 tax year?

Answer 1

For the 2024/25 tax year, there is a subscription limit of £20,000.

Question 2

What type of asset is most commonly held within a stocks and shares ISA?

Answer 2

Stocks and shares ISAs are dominated by collective investment schemes such as
unit trusts and OEICs.

Question 3

If the Government decides to consult on changes to the range of investments eligible for inclusion in a stocks and shares ISA, what type of legislation is this?

Answer 3

This would be classed as secondary legislation. Only legislation passed by
Parliament is described as primary legislation.

Question 4

How would an ISA manager be formally notified of an increase in the amount that can be subscribed to an ISA?

Answer 4

HMRC will issue a Tax-Free Newsletter and will email a copy to the individuals who
are the formal points of contact with HMRC.

Question 5

Where can an investor find information about firms properly authorised to act as an ISA manager?

Answer 5

HMRC maintains a list of all authorised ISA managers on the GOV.UK website.

Question 6

[2.4] How much notice should an ISA manager provide to investors if it ceases to act as such?

Answer 6

Where an ISA manager decides to no longer act as a manager it must give 30 days’ notice to HMRC and investors.

The notice to investors must also advise that they have the right to transfer their account to another provider.

Question 7

[2.5] At which stage of money laundering are investment firms most at risk from money launderers?

Answer 7

Investment firms are most at risk during the onboarding stage.

Investment firms are most at risk at the layering stage of money laundering as
they will typically be dealing with funds that have already been introduced into the
banking system.

Question 8

[2.6] Why is proving trust status so important?

Answer 8

Trust status involves a bank formally confirming that it recognises that the money held in an account does not belong to a firm but is held for its clients. It is important
as in the event of the firm or bank going into liquidation, an insolvency practitioner
would otherwise claim the balance to settle the debts of the firm or the bank.

Question 9

[2.7] How does the client money resource differ from the client money requirement?

Answer 9

The client money resource is the total balances held in the firm’s client bank
accounts. The client money requirement is the sum of the individual client balances
held for clients in the firm’s accounting records.

Question 10

[2.8] Why are nominee companies used to hold client assets?

Answer 10

They are used to segregate assets from those of the firm or custodian.

They are also non-trading companies, so the risk of them going bankrupt is significantly
reduced.

Question 11

[3.1] What action should be taken if an investor does not have a postcode?

Answer 11

If an investor does not have a postcode the application can be accepted but
confirmation that a postcode does not exist must be obtained and kept with the
application. The postcode must be obtained as soon as it is allocated.

Question 12

[3.2] What action should be taken if an investor is not resident for the tax year?

Answer 12

The investor is not eligible to subscribe and the subscriptions made in the tax year
must be removed. If the account is a Lifetime ISA any lifetime bonus received for
that year must be returned to HMRC but the ISA manager must first contact HMRC
before taking voiding action.

Question 13

Can an investor subscribe to an innovative finance ISA after contributing to a cash ISA and a stocks and shares ISA?

Answer 13

An investor can choose how they split the subscription limit between the different
types of ISA, provided that they do not breach the ‘one ISA of each type per
year’ rule or exceed the subscription limits. So, the investor could subscribe the
remainder of the subscription – £7,500 – to an innovative finance ISA.

Question 14

Can an insurance policy be transferred into an ISA?

Answer 14

An existing insurance policy cannot be transferred directly into an ISA. However, an existing policy can be surrendered, and the proceeds used to subscribe to an ISA.

Question 15

Shares from what type of employee scheme can be transferred into a stocks and shares ISA?

Answer 15

Shares can be directly transferred into an ISA if they have been acquired by the
investor from an approved SAYE option scheme or a share incentive plan.

Question 16

Can someone make a valid ISA application on behalf of a soldier on active service abroad?

Answer 16

ISA managers may accept applications signed under a power of attorney where the investor is unable to sign the application because they are a member of the armed
forces on active service in a war zone

Question 17

Can an ISA investor attend a unit trust meeting to vote on winding up the trust?

Answer 17

If requested by the investor, the ISA manager must arrange for the investor to
attend shareholder meetings and be able to vote.

Question 18

[3.8] What amount is an investor entitled to receive back after cancelling an investment sold for £4,950?

Answer 18

The investor is only entitled to receive back the amount received on the sale of
the investment less any charges. Some firms, however, may choose to operate a
different policy.

Question 19

[4.1] Can National Savings certificates be held within an ISA?

Answer 19

National Savings certificates cannot be held within an ISA. They already provide a
tax-free return and their inclusion would add no value.

Question 20

[4.2] Can a call option on a FTSE 100 equity be purchased within a stocks and shares ISA?

Answer 20

Futures and options cannot be held within an ISA.

Question 21

[4.3] Is a bond issued by an investment trust an eligible investment for inclusion in a stocks and shares ISA?

Answer 21

Securities issued by companies and investment trusts are eligible investments.

Question 22

[5.1] Should ISA managers expect to receive interest from a corporate bond fund gross or net of tax?

Answer 22

ISA managers are entitled to receive interest without deduction of income tax and
income tax is no longer deducted from interest distributions from authorised funds.

Question 23

What action needs to be taken if an authorised signatory for the ISA10 claim has left the organisation?

Answer 23

A board resolution should be passed authorising the replacement to act on behalf
of the ISA manager and be submitted to HMRC along with their details and a
specimen signature.

Question 24

[5.3] What action should an ISA manager take if outstanding tax is due to HMRC after completing the ISA14?

Answer 24

Submit the return along with a cheque for the tax due.

Question 25

[6.1] By when must the contract note be issued to the investor after a purchase of an investment?

Answer 25

The contract note needs to be issued no later than the business day following receipt

Question 26

In which circumstances should compensation be paid outside of the ISA?

Answer 26

Where compensation is paid for a delay before the subscription is accepted, it should be paid directly to the investor and outside of the ISA

Question 27

Does an OEIC or a unit trust have the initial charge included in the buying price?

Answer 27

The buying price of a unit trust includes any initial charges. With an OEIC any initial charge is added on separately.

Question 28

On what transactions is SDRT payable?

Answer 28

SDRT is payable on the purchase of UK-registered shares that are settled using the CREST system. It does not apply to shares listed and traded on a recognised growth market, such as AIM.

Question 29

Can a customer pay the broker’s commission directly rather than having it deducted from the ISA?

Answer 29

Charges related to the purchase and sale of investments must be applied within the ISA.

Question 30

Question 7.1 An investor is withdrawing a holding of 1,000 ABC shares from their ISA portfolio and the Daily Official List quotation for the holding is: Name, description Quotation ISIN code Business done ABC plc Ord 20p '1406–1408p' GB0001234567 [1385–1418] What market value should be notified to the investor?

Answer 30

The quarter up price is 1,406.5p and the mid price at which bargains were executed was 1,401.5p. The latter should therefore be used giving a market value of £14,015.

Question 31

What costs would be incurred if an investor instructs an ISA manager to sell quoted securities to close the ISA account?

Answer 31

The investor would incur dealing charges, which for sales would be broker’s commission and possibly the PTM levy if the trade is over £10,000.

Question 32

What action should the ISA manager take if an investor has oversubscribed to last year’s ISAs?

Answer 32

Where the ISA manager finds out from the investor that they have exceeded the overall ISA subscription limit in a previous year, the manager should advise the investor that HMRC will contact them in due course.

Question 33

How long does the old manager have to send funds and a transfer history form to the new manager when a cash ISA is being transferred?

Answer 33

The old manager has five business days in which to send the funds and a transfer history form to the new manager.

Question 34

By what date must the annual returns of statistical information be submitted to HMRC?

Answer 34

Annual returns of information must be submitted within 60 days of 5 April each year; i.e. by 4 June.

Question 35

How long should records of an ISA account be retained after it has been closed?

Answer 35

Where an account has been closed or transferred to another manager, records need only be kept for three years after the date of closure or transfer.

Question 36

Can an HMRC audit find that an application form is not held be repaired?

Answer 36

The investor can repair the breach by completing the form, or by providing the missing form. If the investor is unwilling to do this then the ISA must be voided.

Question 37

How much recovery would HMRC seek for a cash ISA found to be invalid with a deposit of £3,000?

Answer 37

The amount due under the settlement formula would be: £10 × 3 (per £1,000 subscribed) × 2 (period in years) = £60.

Question 38

[9.1] What are the age criteria to be eligible to subscribe for a Lifetime ISA?

Answer 38

An individual needs to be aged over 18 and under 40 to open a Lifetime ISA. The annual payment limit to a Lifetime ISA is £4,000 and payments may be made any time before the account investor’s 50th birthday

Question 39

[9.2] Is a withdrawal from a Lifetime ISA for unexpected expenses charge-free?

Answer 39

Charge-free withdrawals can be made for a first-time residential purchase, at age 60, and in the event of terminal illness, or death. Other withdrawals are subject to a charge

Question 40

[9.3] For how long must funds be held in the Lifetime ISA before qualifying for a charge-free withdrawal for a first-time residential purchase?

Answer 40

A charge-free withdrawal for a first-time residential purchase can only be made from a Lifetime ISA that has been open for at least 12 months after the date of first payment into it.

Question 41

[10.1] What action should be taken to transfer cash held in a CTF to a JISA?

Answer 41

All the savings in the account must be transferred and details of the CTF’s unique number are to be provided to the JISA manager. A statement should be prepared and issued and the CTF closed

Question 42

[10.2] Can a transfer from a stocks and shares JISA to a cash JISA be made?

Answer 42

Transfers are permitted from a cash JISA to a stocks and shares JISA and vice versa.

Question 43

What is the maximum number of JISAs that can be held?

Answer 43

A child cannot have two or more JISAs of the same type.