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May 16, 2001

16th May 2001

PIMA lobbies Inland Revenue to minimise damage

ISA investors who made their initial subscription through a ‘continuous application’ form but broke the rules, may have their entire investment to date (in some cases, spanning three tax years) declared void and be required to repay the tax benefits to the Inland Revenue.

The PEP and ISA Managers’ Association is currently working closely with the Inland Revenue to find a solution to this issue. Peter Shipp, Chief Executive, PIMA said: "A continuous application is one where an investor signs up to make regular payments into an ISA subscription across several tax years. This problem is particularly concerning, as the type of investor most likely to use a continuous application form is someone who is investing substantial sums over a number of years, for example, someone using an ISA as a repayment vehicle for a mortgage."

PIMA confirms that the Inland Revenue is currently writing to ISA managers instructing them to void 1999/2000 subscriptions that have been found to have broken the rules. The instruction also tells managers to void any 2000/1 and 2001/2 subscription made under the same original application, on the grounds that the original declaration has been proved false and applies to all subscriptions made, regardless of the tax year.

This means that some investors who have been saving through an ISA since 1999 already stand to lose three years worth of tax benefit.

Peter Shipp, Chief Executive, PIMA, said: "On behalf of our members, PIMA has already made strong representations to the Inland Revenue on the grounds that this is a change from previously established practice relating to PEP subscriptions made using similar ‘continuous’ applications. We are asking the Revenue whether a method of repair known as ‘simplified voiding’ could be used to minimise the loss to the investor in such cases. PIMA has already succeeded in winning agreement from the Revenue to consider the points raised, in respect of future years and is committed to finding a long term solution to this problem."

While discussions continue, PIMA has identified that one way to absolutely ensure investors are protected from this pitfall in the future is to use an annual application form. Whilst this may mean some additional administration for both investor and provider, PIMA has recommended to its member firms that they may wish to consider switching to annual application procedures where their business does not require the ongoing flexibility of the continuous form of application. Unfortunately, this is not a practical option for managers who offer regular contribution ISA products.


Note to editors:

Peter Shipp is available this week for telephone briefings. For details of availability, please call Stephanie Barrett at Citigate Dewe Rogerson, on 020 7282 2972.

Inland Revenue figures initially indicated that some 85,000 subscriptions may have fallen foul of the regulations in the first year of ISAs alone. Further checks appear to have reduced this figure substantially. It is unknown how many of these subscriptions were made using continuous application forms.

For further information, please contact:

Peter Shipp, Chief Executive
01642 207 207
Stephanie Barrett / Alistair Kellie
Citigate Dewe Rogerson
020 7638 9571

About PIMA:

PIMA’s membership enables it to collate ideas and opinions from right across the PEP/ISA spectrum. It represents a wide range of interests including stockbrokers, unit trust managers, investment trust companies, banks, building societies and independent portfolio managers.

PIMA was formed in April 1991 as the PEP Managers’ Association (PEPMA). It grew into an active association of registered PEP Managers and third party administrators. To meet the introduction of ISAs and to expand services to member firms, the PEP and ISA Managers’ Association (PIMA) was set up in Autumn 1998. Currently PIMA has 135 members which account for over 70% of total ISA subscriptions.

More information is available at www.pima.co.uk