Individual savings accounts (ISAs)

Consumers come to us when they:

• have tried to deposit cash towards the end of a tax year, but missed their annual ISA allowance because the business made a mistake
• top up their ISA during the tax year
• lost the tax-free status of their cash-ISA savings when moving money to a different provider's cash ISA
• find a bank is imposing a penalty fee when they transfer the proceeds of a cash ISA to a different provider's ISA
• are unhappy because the financial business didn’t carry out their instructions or was otherwise at fault

We receive complaints from consumers when:

• they missed an opportunity to use their stocks and shares ISA allowance because the business made a mistake
• a bank hasn’t followed transfer instructions and the customer believes they missed an investment growth opportunity as a result
• the ISA they have doesn’t suit a customer’s attitude to risk
• the business delayed transferring the account to another ISA manager

Most of the complaints we get from consumers about Lifetime ISAs relate to:

• delays in opening Lifetime ISAs
• transferring money in and out of a Lifetime ISA into other ISAs
• how well the risks of the investment were explained
• misunderstanding the rules on withdrawing money from the LISA
• the suitability of a LISA as an investment

These ISAs invest in peer-to-peer lending investments and are sometimes called 'crowdfunding ISAs'. We see complaints about whether:

• advice to invest in an innovative finance ISA was suitable
• risks – including that these ISAs usually don’t benefit from Financial Services Compensation Scheme (FSCS) protection – were clearly explained

Customers who hold cash in an ISA don’t pay tax on the interest. If your customer misses a contribution, they may have to pay tax on any interest they earn on that money.

If your customer lost money in this way because your firm made a mistake, we’ll ask you to compensate them for the loss and any distress and inconvenience.

We usually calculate the loss by comparing the net interest rate earned by the funds outside the ISA, with the gross rate achievable inside the ISA for a period of five years.

We always consider each customer’s financial circumstances carefully. But in most cases we find five years is appropriate and assume that during those five years: 

• the customer's tax status would not change
• ISAs would remain available with the same benefits
• it would be reasonable to expect a savings rate of 2.5% gross

Some customers limit their loss by investing in a cash ISA in a future tax year. If it’s likely the customer could replace the missed ISA contribution within the five years, we’ll take this into account when working out any compensation.

Sometimes a customer will tell us they couldn’t take up their ISA allowance in a tax year because of something you did wrong. If we find this to be true we’ll ask you to pay compensation.

In these cases, we calculate what the customer lost by:

• looking at what they’d have earned from investing the same amount in the same fund at the same price, and
• calculating how much they’d lost by not holding that investment in an ISA.

 This final compensation figure depends on:

• how quickly the missed ISA can be replaced
• the customer's tax status
• how that investment is liable for tax

Some customers in this situation can make up their loss in a future tax year. We will consider whether your customer can make good on a lost opportunity to invest in an ISA. If they can, we’ll look at how long that might be and if it’s likely, taking into account whether they:

• had consistently used their ISA allowance in previous tax years
• have savings, investments or surplus income to put into an ISA in future tax years

In cases about LISAs, we can look at complaints about ISA managers. We can’t investigate complaints about the scheme administrator or the conveyancer.

• delays in opening LISAs
• transferring money in and out of a LISA into other ISAs
• how well the risks of the investment were explained
• misunderstanding the rules on withdrawing money from the LISA
• the suitability of a LISA as an investment

Many of the complaints we see are about:

• how well the risks of the investment were explained
• misunderstanding the rules on withdrawing money from the LISA
• the suitability of a LISA as an investment

We’ll want to find out how clear the ISA manager’s instructions were.

Many customers complain that it wasn’t clear how they could use the government bonus when buying property. As a result, they have had to save for longer than they planned or lost out on other investment opportunities.

In these situations, we’ll check that your LISA literature and advertising was clear about the bonus being paid on completion and not as part of the exchange deposit.

We may agree that you didn’t inform the customer about when the bonus would be payable, but the customer hasn’t started looking for a property to buy yet. In these cases, we can’t be sure they’ll lose money when they buy a property. So we won’t automatically recommend payment towards distress and inconvenience, but may consider other awards.

If customers say they would have put their money elsewhere had they been given clear information, then we’ll investigate:

• whether that’s likely
• which alternatives would’ve been possible

If the customer is in the middle of buying – or has bought – a house using the Lifetime ISA, we'll look at whether they lost out because of unclear information. They may have had to borrow money to make up a shortfall in their deposit, take out a loan or use a credit card.

In this situation, we may recommend a refund with interest charged at 8%. We'll also consider whether you should compensate your customer for distress and inconvenience.