ISA Regulations amended for Dormant Assets Act 2022, recognised schemes, investment trusts and junior ISA manager rules

The Treasury made the Individual Savings Account (Amendment) Regulations 2023 on 6 March 2023, amending the Individual Savings Account Regulations 1998¹. The regulations were laid before the House of Commons on 7 March 2023 and come into force on 6 April 2023¹. They were made under powers in section 151(1) and (2) of the Taxation of Chargeable Gains Act 1992 and sections 694, 695, 695A, 696, 699 and 701 of the Income Tax (Trading and Other Income) Act 2005¹.

Regulation 3 updates the definition of "dormant account" to mean an account containing a "relevant dormant asset" within section 39(2) of the Finance Act 2008, and adds schemes recognised under section 271A of the Financial Services and Markets Act 2000 to the definition of recognised UCITS¹. Regulation 5 amends regulation 5C in consequence of the coming into force of the Dormant Assets Act 2022, inserting references to sections 2, 5, 8, 12 or 14 of that Act alongside the existing references to the Dormant Bank and Building Society Accounts Act 2008¹.

Regulation 6 changes the treatment of investment trust shares in a stocks and shares ISA. It substitutes paragraph (2)(d) of regulation 7 so that, subject to paragraph (3), qualifying investments include "shares in an investment trust listed or admitted to trading on a recognised stock exchange"¹. The explanatory note states that this makes the requirements for shares which are not in an investment trust the same as for shares which are in an investment trust¹. Regulation 7 also adds conditions for innovative finance ISA investments, including that payments must not be made to the lender by reason of their status as an employee, director, partner, trustee or office holder, and that the borrower must not be connected with the lender¹.

Regulation 4 updates the definition of terminal illness as it applies to a child in Northern Ireland for junior ISA permitted withdrawals, providing that section 66(2)(a) of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 is deemed to apply as if for "6 months" there were substituted "12 months"¹.

Regulation 9 inserts a new regulation 17A setting out the circumstances in which the Board may withdraw approval of a junior ISA account manager¹. The notice must specify that withdrawal takes effect from the date the last account is transferred to another manager, and that from the date of the notice the manager must not accept subscriptions or open new accounts¹. Regulation 12 provides that where an investor receives a notice under regulation 17(4) and transfers the account within 30 days beginning with the date approval is withdrawn, the period between withdrawal and transfer is ignored for determining whether the account has at all times been managed by an account manager¹.

Why it matters for households

The changes take effect from 6 April 2023, the start of the 2023/24 tax year¹. For holders of stocks and shares ISAs, the amendment to regulation 7 means the qualifying requirements for shares in an investment trust listed or admitted to trading on a recognised stock exchange are aligned with those for other shares¹. For holders of innovative finance ISAs, new conditions apply to peer-to-peer lending arrangements, restricting payments connected to a lender's employment status or office, and requiring that borrower and lender are not connected¹.

For junior ISA account holders, the new regulation 17A sets out what happens if the Board withdraws approval from a junior ISA manager: the manager must stop accepting subscriptions and opening new accounts from the date of the notice, and must notify the account investor of the right to transfer the account¹. A manager must not cease to act until the junior ISA has been transferred to another manager¹. Where an investor transfers within 30 days of the withdrawal date, the gap is disregarded for the purpose of the account having been continuously managed¹.

The amendment to regulation 4ZE affects junior ISA withdrawals on terminal illness for a child in Northern Ireland, substituting a 12-month period for the 6-month period in the attendance allowance test¹.

What happens next

The regulations come into force on 6 April 2023¹. The withdrawal of approval provisions for junior ISA managers under the new regulation 17A apply from that date, with appeal rights under regulation 18 extended to cover notices issued under regulation 17A¹.