Why "Never, ever, ever, ever" ?

MartyH_2

Hi All, Please could someone throw some light on this please.....

I have £10K sitiing in a cash ISA which I'd like to put into a higher perfoming cash ISA. I am over 50 and so am allowed to put £5100 into an ISA account per tax year. I have not put any money in so far this year, and so I was planning to withdraw the £10K and put £5100 into a new ISA account before the end of this tax year and then put the remainder in the account after April 5th. That was until I read Martin Lewiss quote......

"Never, ever, ever, ever withdraw money from a cash ISA!
You'll immediately lose all the tax benefits."

It's got me scratching my head. I have to confess I just don't understand it . Why would I lose all the tax benefits - I thought the whole point of an ISA was to save for the future (tax free) and then spend the money on whatever one wanted - including more savings. I'm clearly missing something here. Can someone please explain in simple terms what it is - Thanks

Lokolo

If you withdraw the money you aren't really any better off.

Currently you have £10k in ISAs. You can add £5,100 now. You can then add another £5,100 on April 6th. So by then, you could have £20k in ISAs.

What you would be doing, would mean you still only have £10k in ISAs.....

So you would be losing out on £10k worth of ISA allowance.

Baldur

MartyH wrote: »

I am over 50 and so am allowed to put £5100 into an ISA account per tax year. I have not put any money in so far this year, and so I was planning to withdraw the £10K and put £5100 into a new ISA account before the end of this tax year and then put the remainder in the account after April 5th.

As you have such a relatively small amount built up in your Cash ISA, which can be subscribed again so quickly, there's no problem with your plan, as you can deposit your £10,000 back into Cash ISAs over a short period of time.

That was until I read Martin Lewiss quote......

"Never, ever, ever, ever withdraw money from a cash ISA!
You'll immediately lose all the tax benefits."

It's got me scratching my head. I have to confess I just don't understand it . Why would I lose all the tax benefits - I thought the whole point of an ISA was to save for the future (tax free) and then spend the money on whatever one wanted - including more savings. I'm clearly missing something here. Can someone please explain in simple terms what it is.

The problem would be if you had significantly more than £10,200 and withdrew it all - as you could then only deposit £5,100 back into Cash ISAs in each tax year. So any balance remaining outside the Cash ISA tax-free 'wrapper' would be subject to normal taxation on any interest that it generated.

You would also be depriving yourself of the potential to add a further £5,100 to your overall ISA pot on or after 6th April.

MartyH_2

Lokolo -You misunderstand - my £10k of ISA that is currently earning a rubbish rate would fund a new ISA account at a MUCH better rate (I don't have the extra £10k cash free to fund a full top up!)

steveksullivan

If I'm right (and I hope I am....) you're simply confusing the words 'withdraw' and 'Transfer'......

You say you want to put the 10K plus the extra 5,100 into a higher performing ISA - thats fine, but to do it you must TRANSFER the funds from one ISA to the other (request a transfer form from your NEW ISA provider)


If you WITHDRAW the funds from the Ioriginal SA they immediately lose their tax free status......

If still not clear post again ....

EDIT: oops three more posts in the time it took to type mine .....!!!!

mramra

MartyH wrote: »

Lokolo -You misunderstand - my £10k of ISA that is currently earning a rubbish rate would fund a new ISA account at a MUCH better rate (I don't have the extra £10k cash free to fund a full top up!)

You need to find an ISA provider that will accept transfers and then transfer the £10k to the new ISA. If you withdraw the money, rather than transferring, it is then no longer inside the ISA wrapper and you are then subject to the rules of maximum £5,100 investment per tax year.

D1zzy

MartyH wrote: »

Lokolo -You misunderstand - my £10k of ISA that is currently earning a rubbish rate would fund a new ISA account at a MUCH better rate (I don't have the extra £10k cash free to fund a full top up!)

But don't withdraw it -"transfer" it to a new ISA - (there is a form for transferring)
If you withdraw it, you would then, potentially only be able to put your year's allowance (£5100) into the new ISA.
If you transfer you can put in the whole 10K and then add to it (upto £5100) next year when you have funds available

tradetime

The

"Never, ever, ever, ever withdraw money from a cash ISA!
You'll immediately lose all the tax benefits."

quote is to drum into peoples heads that the correct way to move money from one ISA to another is by transfer. For small amounts it doesn't matter, but if you have saved up above the yearly subscription, then you need to transfer.

dev21

Best option is to find an ISA that pays decent rates and accepts transfers in - any ideas anybody. Otherwise withdraw the 10k and reinvest now and in April in no transfer decent rate isas but lose the previous years tax free slots the original ISAs were occupying. If you have no spare funds then that doesn't matter too much.

Old_Wrinkly

Based on MartyH's posts #1 & #4, isn't this situation more comparable to simply switching saving accounts for a higher rate.
MartyH says he has £10K now in ISAs & implies he would still only have £10K in ISAs at the end of the 2010/11 tax year (because he hasn't got unlimited funds like some of you millionaires ).
If that is the case, then (as he, Baldur, etc) say, he can either transfer his £10K now to another provider that allows transfers-in (but which might not be the highest rate) or he can draw £5100 out immediately and put it in a new ISA (with possibly a higher rate) and in a few weeks time withdraw the remainder of his current ISA funds (£4900) and put that in a new ISA for 2010/11 (again at possibly a higher rate).

If the best (cash) ISA interest rate available is on a 'new money only' ISA, then that offers MartyH the best deal.

Of course if the highest interest rate ISA allowed transfers-in of old money, then that would be preferable, and I suppose they would be inundated with funds.

G_M

As old wrinkly says it depends if OP has (or may next year have) additional savings available to put into an ISA.

If the answer is no, then there's no problem. Withdraw and open a new ISA with the £10K.

If the answer is yes, or maybe, then TRANSFER the money from old ISA to new ISA and still have possibility of adding a further 5,100 this and next year making up to £20,400 rather than £10,200.