ISA savers have been warned they could incur a charge (Image: Getty)
HMRC has warned ISA savers they may be hit with a charge if they overstep an important annual limit.
A person contacted the tax body over X to ask: “If I over deposited into my ISA (£4,000 over the £20,000 limit) would I be liable to pay taxes on any gains I made from that £4,000 within my stocks and shares ISA?”
Each individual can deposit up to £20,000 a year into ISAs. This can be split between cash ISAs, stocks and shares ISAs, innovative finance ISAs or a Lifetime ISA.
This type of savings has the benefit of being tax-free, with no tax to pay on any interest earnings or on any growth of investments wrapped up in an ISA.
The tax authority said in response to the saver: “You are likely to incur a charge for the over subscribing. Your ISA manager can advise you on this and the next steps.”
In a from , the group said that if you overpay into your ISA for this tax year, you can contact your provider “to remove overpayment amounts to correct the error”.
If you have oversubscribed for a previous tax year, the advice is not to do anything and not to try and correct the error. In this case, will write to you about the matter.
Savers may be looking to use up their ISA allowance with the turn of the tax year just three months away.
There was a rush in people depositing into ISAs in April last year, with Bank of England data showing people deposited £11.7billion that month, more than in any other month for the past 25 years.
Sarah Coles, head of personal finance, Hargreaves Lansdown, said that with still high, savers at risk of a tax bill are increasingly looking to ISAs to avoid paying out to .
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She explained: “Although savings rates have fallen from the peak, there are a number of accounts offering just shy of 5 percent.
“It means many more people worrying about tax on savings, which has pushed cash ISAs up the agenda for millions of savers.
“Concerns about potential tax changes in the Budget played their part too, with more savers realising the benefits of being able to protect their savings from the whims of successive chancellors.”
The Lifetime ISA offers an attractive 25 percent bonus on any deposits. You can put in up to £4,000 a year, meaning a potential bonus of £1,000.
The funds have to go towards your first home or can be accessed once you turn 60, otherwise there is a 25 percent penalty to pay.