Question Of The Week: ISA Transfers & Allowance

Former_MSE_Penelope

Q. We both have nearly £44,000 in an instant access Cash ISA, add next year's in and we'll top the safety limit. You said you can only pay in to one ISA each year. Does that mean we could have opened other new accounts offering better interest & still keep money tax free in the others, provided we don't put cash in it? Brenda Thorne

Martin's A: In a word YES. Let's tackle safety first, the UK Govt only protects you £50,000 per person per financial institution for savings – and that includes ISAs. Yet with the small yearly amount you can put in, it's only now some people are close to hitting the limit for the first time.

As for the rest of your question, you can’t open more than one ISA in any individual year, but you can have each different tax years ISAs with a separate provider, and they all stay tax free year after year. For those who haven’t done this years yet you can get 3.5% cash ISAs and for your old ISA see the top cash ISA transfers so you can up the rate.

Click reply to discuss.

rb10

MSE_Penelope wrote: »

As for the rest of your question, you can’t open more than one ISA in any individual year, but you can have each different tax years ISAs with a separate provider, and they all stay tax free year after year.

To those who are not familiar with the ISA rules, I think that this bit is unclear.

You can open more than one ISA in any individual year - so she would be allowed to open up another ISA for next year's allowance, and transfer the existing £44k to a different ISA.

She would then open two ISAs (which you say is prohibited), but the key thing is that as she only pays new money into one of them, this would be permitted.

Missy79

I agree with rb10, I also found the phrasing somewhat misleading; as I understand it you can transfer funds currently in ISAs into any new ISA account you like at any time (usually for a better rate), but you can only deposit "new money" into one account in any financial year.

jamesd

You can create an unlimited number of ISAs each year and transfer as much or as little as you like into them. You can only have one cash ISA and one S&S ISA that has had non-transferred money paid into it each tax year. However there are some useful exceptions to this one of each type rule:

1. You can transfer an ISA you've paid money into this tax year to another ISA and add more money after the transfer, up to the usual limit, including any money paid into the first one. You can do this transfer as often as you like. You must transfer all of the money from this year in the account each time but don't have to transfer money from past years.
2. You can transfer any amount of money paid into a cash ISA this tax year into a S&S ISA and it's as if the money was originally paid into the S&S ISA. It no longer counts against the cash ISA limit, but now against the S&S and combined limits instead.
3. As a special case that you should try to avoid, you can withdraw all of the money from a cash ISA you have paid into this year, including all money from past years, and then deposit up to this year's allowance, less any money paid into another ISA, into the new ISA. You can only do this once per tax year and can't do it for a S&S ISA.

There are some useful examples from HMRC:

Mr Rosen subscribes
• £2,000 to a cash ISA with Manager A in May 2008, and
• £1,000 to a stocks and shares ISA with Manager B in June 2008.
The cash ISA with Manager A is credited with £20 interest in July 2008. In August 2008 he decides to transfer the current year subscriptions to his cash ISA from Manager A to Manager B. The whole £2,020 is transferred. And since the date of the first payment in to the cash ISA pre-dates the date of the first payment to the stocks and shares ISA, Manager B updates his records to show the date of the first payment in the current tax year as May 2008.
Mr Rosen is now regarded as having subscribed £3,000 to the stocks and shares ISA with Manager B and nothing to the cash ISA with Manager A.

"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."

"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."

"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."

jimf937

Thank you for clarifying that. I recently attempted to transfer from a low-rate provider and the proposed new provider sent me forms with a declaration that I was unable to sign because I had a current ISA to which I had subscribed. There was no mention of "excluding previous years ISA's on transfer" or similat wording. This is the only location where I have been able to get an answer.:T

jamesd

The HMRC link gives the definition of subscribed. It's only money paid in during the current tax year. You're in the clear. It's probably there just in case you pay in money in later years. It's safe to ignore it when transferring and the HMRC document even says you can strike it out. But don't, it'll just confuse people processing the forms who may not be people who really know the rules at this busy time of year.

leeparsons

So sorry to get anyone to repeat. Maybe im being a little thickel, and I did thought I grasp this at one point, until another comment was said.
I understand you can not open another new isa, in a previous tax year, which has already seen new money subscirbed to it.
Thou, am I correct in understanding that, if you have had previous money in another isa (1). You allowed to transfer this money to a new provider(2), and still open another isa(4) and add money to that, after new tax year. As you have only transfered the balance from isa(1), to isa (2), which is not new money. Thus allowing new money to enter isa (3)?
If so, and that is the case. Would you be able to split this money from provider(1), between a number of providers (2) and (3) (as this is not new money), and still open another isa(4) and add money to that?

dudkate

can anyone help me please, i am trying to find the best stocks and shares isa to put some money into please, and was going to use an advisor but he is going to charge us alot of money for his advice!!!

would appreciate any ideas please. thanks

jamesd

dudkate, if you're going to be buying funds (unit trusts, OEICs) then Hargreaves Lansdown is a good ISA to choose. You can pay the money in now and pick the funds to buy later. When it comes to choosing which funds to buy within the ISA, you should start a new topic. Say how long you expect to keep the money invested, how much you expect to invest and how much of a percentage drop from year to year would cause you to lose sleep or panic and take your money out. 30-40% will be enough to get good growth potential, less will limit it a bit, more will allow more speculative and potentially profitable options like more emerging markets or commodities as part of the mixture.

leeparsons, for the paragraph starting thou if 3 and 4 are the same account or one is cash and the other S&S you're right. They have to be different types because you're writing about adding new money to both, not just transferring money - transferring would be fine. For the para starting if so, you're right.

leeparsons

jamesd wrote: »

leeparsons, for the paragraph starting thou if 3 and 4 are the same account or one is cash and the other S&S you're right. They have to be different types because you're writing about adding new money to both, not just transferring money - transferring would be fine. For the para starting if so, you're right.

Let me explain better If you had an old isa say, and another isas. I know that the old isa rates, dont pay very well, and the newer isa rate will end soon. So my freinds idea, for new fincial year. Was to transfer the old isa and the newwer ending isa, into a new higher paying provider. My freinds asked me on this, and from way I have read things on here, you can do that, right? Thus getting a better rate over all.

jamesd

Yes, you can do that.