The reinvestment will not count towards their £20,000 annual ISA allowance.

HMRC said it had reviewed the position of LCF ISAs and that HMRC would consider the bonds issues by LCF void and therefore not inside an ISA wrapper.

This means that any LCF customer who received compensation from the FSCS and held an LCF ISA can use some or all of their FSCS payment to make a single ‘defaulted investment subscription’ to a new or existing ISA. 

Reinvestment must be made within 180 days of receiving compensation.

Where FSCS compensation was received before 19 April 2021, HMRC will treat the date the FSCS compensation was received as 19 April 2021. This makes sure that all investors have a full 180 days in which to make a ‘defaulted investment subscription’ if they so wish.

Some 11,625 investors lost savings worth a total of £237m when LCF collapsed with the majority so far not compensated by the FSCS due to questions about whether their investments were regulated or not.

Earlier this month, Treasury minister John Glen announced a £120m government-backed compensation scheme for LCF mini-bond victims which will pay up to 80% of losses up to a maximum of £68,000.

Where bondholders have received interest payments from LCF or distributions from the administrators, Smith & Williamson, these will be deducted from the amount of compensation payable.

The scheme will be available to all LCF bondholders who have not already received compensation from the Financial Services Compensation Scheme (FSCS) and represents 80% of the compensation they could have received had they been eligible for FSCS protection, which is capped at £85,000.

The FSCS has so far paid out £57m to around 2,800 LCF bondholders, about a quarter of those who lost money. 

Around 97% of all LCF bondholders invested less than £85,000 and therefore will not reach the compensation cap under either the government scheme or the FSCS.

The FCA has apologised for its handling of the case and said it will pay compensation to a small number of LCF investors who had complained about its handling of their case.