Maxi Isa

�7,000 savings limit �3,000 in cash �1,000 in insurance �3,000 in shares or �7,000 only in shares

Mini Isa

up to three Mini Isas Mini Isa 1: �3,000 in cash Mini Isa 2: �1,000 as insurance Mini Isa 3: �3,000 in shares

This is because they have opened both a mini and a maxi ISA in the same year.

The Treasury and Inland Revenue are currently analysing all the figures from the providers for the first year since the introduction of Isas, which replaced Tessas and Peps as tax-free savings accounts.

Calls for amnesty

The banks were not required to make that very explicit with the individual. They had to put it in their literature.

Philip Warland, Association of Unit Trusts & Investment Funds

The extent of the problem will be known only once all the figures have been collated.

The personal finance industry, providers and governing bodies alike, all say there should be an amnesty for the first year of the Isa - provided that savers have not gone over the annual investment limit of �7,000.

At the moment the rules say that the second Isa set up is the one that is void.

The investment would stay in place, but the accompanying tax break would be lost.

People who have bought both mini and maxi Isa may find that they have to pay Capital Gains Tax on top of that, if they have sold shares.

Philip Warland of the Association of Unit Trusts and Investment Funds argues that banks were not required to spell out the rules to individual savers, but points out that the regulations would have been printed in the literature that came with the savings instrument.

Confusing rules

Isas could cause tax headache

Everyone, apart from the Inland Revenue and the Treasury, agree that the rules are confusing.

One reason for the confusion is a change of the basic rules of tax-free investing. Before the launch of Isas, savers could take out a Personal Equity Plans (Pep) with just one provider a year.

But as the government expected that a lot of people would be buying their Isas from supermarkets, it felt that investors should be able to go to more than one place.

Also, the rules on Isas are different from the rules on Tessas.

Isas tend to pay higher interest than the best-paying deposit accounts.

What are Isas?

Individual Savings Accounts were introduced by the Government in April 1999 as a tax-free savings plan.

You can have:

• One Maxi Isa with a savings limit of �7,000
  �3,000 in cash
  �1,000 in insurance
  and the rest in shares
  or only shares up to a value of �7,000
or
• Three Mini Isas
  �3,000 cash
  �1,000 insurance
  �3,000 in shares

You should not have a mini and maxi Isa in the same tax year, or two mini Isas of the same type.

If you violate the investment rules, the second Isa you set up will have to be closed down.

Interest will not be lost but the tax benefits that come with the Isa wrapper are gone.

The result would be the same as with any taxable investment.

If shares in an illegal Isa have been sold, capital gains tax may have to be paid.

The providers of Isas should be able to help savers sort out their tax affairs.

Tax implications

As Isas are tax free, they need not be declared on an income tax self assessment form.

However, the Inland Revenue is in the process of auditing the providers.

As national insurance numbes are used when applying for Isas, cross references can be made revealling whether more than one Isa has been opened, even if they are taken out with different providers.

Figures are likely to show that the problem widespread.

When ISAs first came out the banks were not obliged to tell you whether you were investing in a mini or maxi ISA, but all the advertising did spell it out.