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rb10

lizzyshep wrote: »

Yes, thank you very much for explaining that. So, I could do the following:

Withdraw the £2000 I have in my First Direct ISA now (I haven't paid any money into it this tax year)
Open up a new A&L ISA that has a higher rate of interest and pay the £2000 in before the 6th April
That will still leave me with the full £3600 allowance for next tax year

Have I got that right?

Yes, that would comply with the ISA rules, as long as you have not paid into any ISA during this tax year (not just the First Direct one).

However, it is not advisable unless you will definitely not be able to pay any more than £1600 (your remaining allowance after paying in £2000) into an ISA before 5th April 2010.

If you do what you propose, and are able to pay some more money into an ISA before 5th April 2010, then it must go into the A&L/Santander account.

Your allowance for 6th April 2010-5th April 2011 will be £5100 - they have increased it. This can be added to the A&L/Santander account, or placed elsewhere.

lizzyshep

Great, that's clarified things for me. I always wondered about Martin's warning about not withdrawing money, but I guess that applies to people who are richer than me! There's no way I'll pay in more than £1600 before April 2010, so I'll withdraw the money from the First Direct Account and put it in the new one. It's good news about next year's allowance being increased too.

jamesd

It's also possible to withdraw all of the money from a cash ISA that you've paid into this year, close that account (leaving zero balance is close enough) and deposit the ISA limit into this one in this tax year.

Note that you must both withdraw all of the money in the account so the balance is zero. Withdrawing part of it is not acceptable and will breach the self-transfer rules that make this acceptable to HMRC.

This is covered in paragraphs 12.30 onwards in the Guidance Notes for ISA Managers.

lizzyshep

Thanks, I didn't know that, I thought you could only pay into one each year - I didn't realise you could close one and open another.

jamesd

It's a new rule that was introduced for the 2008-9 tax year onwards. Just be sure you don't do it more than once each tax year!

rb10

jamesd wrote: »

It's also possible to withdraw all of the money from a cash ISA that you've paid into this year, close that account and deposit the ISA limit into this one in this tax year.

Note that you must both withdraw all of the money and close the other account. Withdrawing part of it and leaving the account open is not acceptable and will breach the self-transfer rules that make this acceptable to HMRC.

This is probably best avoided though ... the HMRC guidelines aren't totally clear on what is and isn't allowed with regards to self-transfer.

They state that self-transfer is not permitted, and then go on to explain how to do it. So I wouldn't want to risk it myself.

jamesd

What do you think is unclear about the rules and the examples that illustrate how they work? Here are the examples that HMRC gives:

"Mrs Cooper subscribes £3,000 to a cash ISA with Anybank plc on 20 April 2008. She closes it on 30 November 2008, then subscribes to a second cash ISA with Betterhomes Building Society on 3 December 2008. The subscriptions to the second cash ISA are valid."

Seems easy enough: close the first and put the money into the second.

"On the same day Mrs Jones subscribes £3,000 to a cash ISA with Anybank plc. She closes it on 30 September 2008, then subscribes to a second cash ISA with Betterhomes Building Society on 3 November 2008. She closes it on 15 February 2009, then subscribes to a third cash ISA with Superiorhomes Building Society on 23 February 2009. The subscriptions to the Betterhomes Building Society cash ISA were valid, but the subscriptions to the Superiorhomes Building Society cash ISA are not valid and are not eligible for repair."

But don't do it more than once.

"Mr Johnson subscribes £3,000 to a cash ISA with Betterhomes Building Society in August 2008. In March 2009 he subscribes £3,000 to a cash ISA with Superiorhomes Building Society. None of the subscriptions are used to purchase insurance products. The subscriptions to the Superiorhomes Building Society are invalid, but repairable. The total subscriptions are £6,000, which exceeds the £3,600 cash ISA subscription limit. The excess subscriptions of £2,400 must be removed from the Superiorhomes Building Society ISA, but the other £600 subscriptions can be repaired."

And don't go over the limit, after adding back what you took out of the first one, or some will be invalid and later HMRC will notice can invalidate the part that's over the limit, so the extra money is returned to you.

rb10

Jamesd, you have quoted section 12.33 of the Guidance notes.

Section 12.30 states that:

ISA investors must transfer their ISAs through the ISA manager. Investors cannot transfer an ISA by closing it and opening a new ISA with the new ISA manager (commonly known as ‘self transfer’).

These two sections appear to completely contradict each other, which is why I would rather stick to the 'official' transfer system.

jamesd

rb10, in general it's prohibited. The specific exception where it's permitted is after withdrawing all of the money and that is limited to once a year only. The later paragraph is giving details of a specific exception where the first doesn't apply. Section 12.33 gives examples that illustrate how sections 12.30, 12.32, 12.32a and 12.33 work together. So 12.30 says:

"ISA investors must transfer their ISAs through the ISA manager. Investors cannot
transfer an ISA by closing it and opening a new ISA with the new ISA manager
(commonly known as ‘self transfer’)."

and then 12.32 introduces the exception:

"However, where
• the investor subscribes to two cash ISAs, in the same tax year, and
• subscriptions to the first ISA subscribed to were valid, and
• the first ISA subscribed to was closed (see paragraph 12.33) before
subscriptions to the second ISA were made
the subscriptions to the second ISA may be valid (see paragraph 12.32a)."

which is limited by 12.32a:

"The first cash ISA to be self-transferred in tax year is valid, and need not be
repaired.
The second (and any subsequent) self-transferred cash ISA is not valid and is not
eligible for repair."

and 12.33 clarifies that taking all of the money out is enough to close the ISA and then goes on to give the examples I gave earlier:

"An cash ISA is closed for this purpose when all the funds held in the ISA are withdrawn (including any subscriptions for earlier years) and no further subscriptions are made to the ISA in the same tax year."

If you don't find HMRC's own examples persuasive you could call the HMRC ISA helpline to get it from HMRC verbally instead of from the rules and their examples.