Between a (Northern) Rock and a hard place?

Published on 20 November 2007

Investors who made a panic withdrawal from their Northern Rock Individual Savings Accounts (ISAs) are to receive special consideration. But what does this mean for investors in future and will this create a precedent?

On 18 October, the Government announced an amnesty for Northern Rock investors who made a panic withdrawal of cash from their ISA between 13 and 19 September 2007. In their rush to take their money out, many investors will not have followed the proper rules for transferring their ISA to another provider, potentially losing future tax benefits.

However, the Government has said:

Savers wishing to restore their lost cash ISA tax advantage must by 5 April 2008 either:

a) return their funds to a Northern Rock ISA, or
b) obtain from Northern Rock a certificate for the amount of cash ISA savings withdrawn between 13 and 19 September 2007, and present this to a new cash ISA provider when depositing the money.

No special rules are provided for withdrawals made on any other dates. But if you are one of the investors affected by this announcement, you will need to take action by the deadline of 5 April 2008.

Investors in Equitable Life may be hard-pressed to recall any special tax treatment given to them.

LITRG is not suggesting that this favourable treatment for Northern Rock investors should be set aside; indeed it is a welcome acknowledgment of how complex is the small print surrounding many aspects of tax rules for those on low incomes.

We shall be looking out in future for circumstances where people on low incomes have to make decisions in a hurry and where they lose out where the tax rules are less than clear.

We can see the letters now:

'Dear HMRC

I panicked and would now like to claim under the special Northern Rock principle………..'

(20-11-2007)

Contact: John Andrews (Tel: 0844 579 6700 Fax 0844 579 6701)