Why Transfer?

Skerry

Hi All, Can someone explain why you have to transfer between one ISA and another. I know Martin recommends never ever closing one account and opening another as you lose your tax benefits but why? I currently have 5 ISA's but haven't made any payments for this current year and 3 of my ISA's haven't had any money deposited in them for 3 or 4 years! If I was to close one of the older ISA's and bank the money in my current account, why would I be penalised if I decide that I want to open a new ISA this year with that money? Still can't understand the reasoning behind it or am I missing something really simple. Any help would be appreciated. Cheers

Baldur

As soon as you close a Cash ISA and pay the resulting funds into a new Cash ISA, rather than transferring it to a new provider, you lose two things, the ongoing tax-free status of the funds already in the ISA and the current tax year's allowance - which would be an additional £3,600 if you had not closed your ISA to fund a new one.

Charlton_Taz

Its a subtle difference but It could be explained as follows:

You open an ISA to utilise your current year ISA allowance i.e. to deposit your £3,600 (if you've already got an ISA open from a previous tax year and want to contribute to it in the new tax year then that is also fine).

You transfer an ISA to preserve prior year allowances.

Essentially, the problem is that if you shut an old ISA and open a new one to put that 'old' ISA money in, is that then you are using your 'current year' allowance doing so. By transferring instead you do not use any of the 'current year' allowance. Therefore, you can build up a large balance over the years to take advantage of tax-free interest and you can ensure that you are getting the best rate for your money.

Skerry

Ok, I think I'm getting there. I understand that I would lose some of this years allowance if I closed an old ISA and then paid into a new one, which wouldn't be a problem if I thought I wasn't going to be able to save the maximum anyway. Can I assume that the interest paid on the old ISA remains intact (ie tax free) even if I close it and bank the money? Another reason for my question was that a lot of providers don't allow transfers in hence the closing and opening of a new account. Does that make sense? Cheers

Any

If you "close" an ISA and let's say transfer £2k into your current account (the interest earned for the time it was in ISA is still tax free) and then "open" new ISA with that £2k that leaves you with no chance of a/opening another ISA (so you can do this only once a year) and b/this year you can only add to this new ISA another £1600 so the balance invested in the tax year is only £3600.

If you closed all your 5 ISAs and they would add up to £5k for example, you would be only able to open 1 new ISA and deposit £3600...

So if you have just £1k, you can close the ISA, open new one, deposit the £1k + keep adding until £3600 if you want to.

sheslookinhot

Charlton_Taz wrote: »

Its a subtle difference but It could be explained as follows:

if you've already got an ISA open from a previous tax year and want to contribute to it in the new tax year then that is also fine

You cannot contribute to an ISA from a previous tax year.

rb10

sheslookinhot wrote: »

You cannot contribute to an ISA from a previous tax year.

Yes you can! Otherwise you would end up with dozens of different accounts, after you've been doing it for a while!

So if you opened an ISA with £3600 of new money in 2008/09, and now wanted to add a further £3600, then that would be permitted (providing the T&Cs of the individual account allow it).

sheslookinhot

rb10 wrote: »

Yes you can! Otherwise you would end up with dozens of different accounts, after you've been doing it for a while!

So if you opened an ISA with £3600 of new money in 2008/09, and now wanted to add a further £3600, then that would be permitted (providing the T&Cs of the individual account allow it).

You cannot contribute to an ISA from a previous tax year. If you did not use your previous years allowance, say you added £2,000 in 2008/2009, you cannot make this up to £3,600 in future tax years. Yes, you can obviously contribute but only by using the new tax year allowance. It effectively is a "new ISA" as its a new year allowance you can add.isa although

rb10

sheslookinhot wrote: »

You cannot contribute to an ISA from a previous tax year. If you did not use your previous years allowance, say you added £2,000 in 2008/2009, you cannot make this up to £3,600 in future tax years. Yes, you can obviously contribute but only by using the new tax year allowance. It effectively is a "new ISA" as its a new year allowance you can add.isa although

Ah, I see what you mean. You can however put it into an ISA that was opened in a previous tax year.

franzthestampede

Hi!
I have a question related to transfers.
During tax years 2007/2008 and 2008/2009 I filled up my ISA allowances with an HSBC Cash ISA.
I had about 6900£ in it, which paid a nice interest of about 25 pounds a month.
Then the crisis came and it went down to 1.5 pounds a month, which is about 0.2% interest. Ehrm.

I did the following:

1 - Opened a Golden ISA with Barclays using the 2009/2010 allowance.
2 - Transferred 1000 pounds from my HSBC ISA to my current HSBC account.
3 - Transferred a total of 3599 pounds from my current HSBC account to my new Golden ISA

Now I have three questions:

A - I still have about 5900 pounds in my HSBC ISA with the pathetic interest. I take it I should transfer those to an ISA that accepts old years' allowances. Is the NatWest eISA the right one for me?

B - Was step 2 of the three steps above (i.e. transferring 1000 from my HSBC ISA to my HSBC current account) a mistake I will have to pay for?

C - Can somebody explain a bit better the golden ISA rule from Martin? How can I "never ever withdraw money from a cash ISA"? What if I need to spend that money on something? I'm not sure how he means...

thanks for all the help!

rb10

(A) Yes, definitely transfer. No one on here can say which is the right one for you ... depends if you may need instant access to the money and/or want to know where you stand with a fixed rate, or will take a gamble on a variable rate.

(B) Yes, as by doing it that way you've lost £1000 of this year's ISA allowance.

(C) That 'rule' is a little misleading ... what he means is don't ever withdraw money from an ISA, to pay it in to another different ISA. Instead, transfer it using the bank's ISA transfer process (i.e. go to the bank where the new ISA is and ask them to transfer it). Of course, if you need the money, you can withdraw it! It's still yours!