ISAs are confusing - are you sure?

bigfreddiel

what is it about isas that people find it so confusing?

we all have an annual allowance - so thats not too hard to understand

you can have two types - cash and s&s - okay 2 things to think about now

you can open one of each per year - can you fill out a form

cash can be up to half your annual allowance - hmmm divide by 2, now getting a little bit mathematical

you can transfer isas to another provider - you don't have to do this, its up to you - more form filling

you can transfer cash isa to s&s isa but not vice versa

transfers do not use up your annual allowance

definitions:
annual - april to april
allowance - the amount you can add, if you withdraw you cannot put it back
transfer - moving from one isa to another - has no affect on your annual
allowance

glad to be of help

fj

Naf

bigfreddiel wrote: »

you can open one of each per year - can you fill out a form

You can open as many as you please. You can only contribute new funds to one of each.
generally transferring between providers constitutes a new opening as far as the bank you're moving to is concerned, and you can do this as many times as you like throughout the year, even with the one you've made contributions to.
Then there's the fact that you can't replace funds you withdraw. Because the allowance is only with respect to your deposits. i.e. once your new deposits total your annual allowance, you can't pay more in, even if you withdraw some.

masonic

You forgot to mention that when transferring an ISA you need to get your ISA provider to transfer your subscriptions for you.

Edit: Forgot to add... except that you are allowed to withdraw your current years subscriptions from the first ISA that you open and self-transfer them into a second ISA under the self transfer rules (although this isn't considered 'best practice', it counts as a valid transfer). However, you cannot do this with previous years subscriptions.

masonic

Naf wrote: »

You can open as many as you please. You can only contribute new funds to one of each.

You can contribute new funds to more than one (of each type of) ISA if you transfer an ISA to which you have not yet fully subscribed.
You can also contribute to several ISAs (of each type) if they are held by the same ISA manager, and the ISA manager allows you to do so.

bigfreddiel

Naf wrote: »

You can open as many as you please. You can only contribute new funds to one of each.
generally transferring between providers constitutes a new opening as far as the bank you're moving to is concerned, and you can do this as many times as you like throughout the year, even with the one you've made contributions to.
Then there's the fact that you can't replace funds you withdraw. Because the allowance is only with respect to your deposits. i.e. once your new deposits total your annual allowance, you can't pay more in, even if you withdraw some.

why any sane person would open an isa and not contribute i have no idea

other than that my post stated all the above - albeit more succintly

fj

kidmugsy

bigfreddiel wrote: »

why any sane person would open an isa and not contribute i have no idea

fj

I've just learnt of the useful stunt of opening a Cash ISA with good terms in April, and then - later in the tax year when you have some money available - you can decide whether to make a contribution into it, or look around to see whether there is now something more attractive on offer.

MoneySaverLog

bigfreddiel wrote: »

why any sane person would open an isa and not contribute i have no idea

Because you can have a cash isa you contribute towards in the current tax year, and you can open a second cash isa that you don't contribute towards in the current tax year but open in order to transfer previous years allowances into it.

alastair_h

bigfreddiel wrote: »

why any sane person would open an isa and not contribute i have no idea

I have opened one in the past and before I transferred existing funds to it a better deal came out - so I went with the better deal! Seems sane enough to me.

jimjames

masonic wrote: »

You can contribute new funds to more than one (of each type of) ISA if you transfer an ISA to which you have not yet fully subscribed.
You can also contribute to several ISAs (of each type) if they are held by the same ISA manager, and the ISA manager allows you to do so.

Suddenly what was a simple explanation gets very complicated!

You cannot contribute new funds to an ISA for anything other than this tax year.

Naf

jimjames wrote: »

Suddenly what was a simple explanation gets very complicated!

You cannot contribute new funds to an ISA for anything other than this tax year.

I believe what is mean is if you open an ISA now with, say, Barclays and deposit £1000; you can then transfer it to, say Lloyds and add another £1000, to Santander and add another £1000 etc. up to your annual limit. Each of these would seem to be a new ISA opening with the new provider, but its still the same ISA funds moving, so in a sense still the same account.

masonic

Naf wrote: »

I believe what is mean is if you open an ISA now with, say, Barclays and deposit £1000; you can then transfer it to, say Lloyds and add another £1000, to Santander and add another £1000 etc. up to your annual limit. Each of these would seem to be a new ISA opening with the new provider, but its still the same ISA funds moving, so in a sense still the same account.

Exactly, and this also highlights why ISAs are complicated. It is not so much the rules governing ISAs as the ambiguous language used to describe those rules in a simplified manner.

Most would interpret "you can't subscribe new money into more than one cash ISA per tax year" as meaning once you have opened an ISA with particular provider, you can only pay money into that specific account with that ISA provider. Few would interpret an ISA that they have transferred from Barclays to Lloyds as being the same ISA. People will tend to think of these things in terms that they know (e.g. current and savings accounts). If you switch your current account from Barclays to Lloyds, even though your salary and bill payments will likely be transferred, I don't think anyone would think of it as the same account.

It is best not to get hung up on condensing the various peculiarities of ISAs down to a few bullet points (and then proclaim ISAs aren't confusing). You end up with a tendency to overlook certain subtleties that can come in very useful in certain situations.

Edit: For clarifications, two situations where the advice in the OP would be likely to mislead:
1) You open a new cash ISA for the 2011/12 tax year and half fill it. The rate drops and you see a much better rate somewhere else and want to transfer. You don't have the money to fully subscribe the ISA now, but plan to do so later in the tax year. If you do not want to forfeit the rest of your ISA allowance, must you stay with your current provider until you have used up your allowance?
2) You open a new cash ISA for the 2011/12 tax year and half fill it. The account becomes 'closed issue' and the ISA provider will not accept further subscriptions into your ISA account. You don't want to transfer out of this ISA because the rate is very good. Do you have to transfer to another ISA in order to utilise the rest of your allowance?