ISA questions

milann

Hi

Not sure if I'm being a bit thick or not - is there anyone out there who can help me understand ISA's (I have read the info on board but it still isn't making full sense!!) - friend has also read it and we have both interpreted what we've read differently LOL

If you have an ISA you can put £5300 per year tax free. Now what happens if you transfer cash from one ISA to another without ever taking it out of an ISA - is this included in that amount or can you do this over and above as it has already been in an ISA?

My friend inherited £5000 and put it into a new ISA yesterday - think it was 2.5% interest then bank agreed to transfer the extra £300 from old extisting ISA that has been dormant many years but would not transfer the rest of the balance from old ISA (about £800) said that would have to wait until April - is this right?

This account is hopefully going to be added to on a more regular basis than in the past but don't want to commit to set payment or tie cash up - will the whole amounts earn the ISA rate of interest or is it only the first £5300 and the rest earning less? In which case is it worth having an ISA with more than that in?

Friend and myself aren't too sure which of us is correct - please help us settle this - thanks.

rb10

milann wrote: »

Not sure if I'm being a bit thick or not - is there anyone out there who can help me understand ISA's

No, you're not being thick! ISAs can be quite complex.

milann wrote: »

If you have an ISA you can put £5300 per year tax free. Now what happens if you transfer cash from one ISA to another without ever taking it out of an ISA - is this included in that amount or can you do this over and above as it has already been in an ISA?

The ISA limit is currently £5340, but this changes each tax year.

If you transfer money from one ISA to another, then this does not count towards your annual ISA limit (provided that you do it properly - i.e. fill in an ISA transfer form from the new bank, and don't just withdraw the cash and pay it in).

The annual ISA limit only applies to new money that you pay in. Once money is inside the ISA wrapper, you can do what you like with it.

milann wrote: »

My friend inherited £5000 and put it into a new ISA yesterday - think it was 2.5% interest then bank agreed to transfer the extra £300 from old extisting ISA that has been dormant many years but would not transfer the rest of the balance from old ISA (about £800) said that would have to wait until April - is this right?

He has been badly advised by the bank.

Some banks (e.g. Barclays, Santander) do not accept ISA transfers in. My guess is that your friend's bank does this, and so has effectively withdrawn the cash from the old ISA and paid it into the new one - meaning that it counts towards his £5340.

S/he can move the £800 to a better ISA now, and does not have to wait until April. Just open a new ISA that accepts transfers in, and fill in an ISA Transfer Form from the new bank.

milann wrote: »

This account is hopefully going to be added to on a more regular basis than in the past but don't want to commit to set payment or tie cash up - will the whole amounts earn the ISA rate of interest or is it only the first £5300 and the rest earning less? In which case is it worth having an ISA with more than that in?

Normally the whole balance will earn the full rate of interest.

Just keep an eye on the rate; many will only last for a year.

When the rate does drop, don't just close the account. Instead, find a better account that accepts transfers in, and get that new bank to do the transfer.

There is a list of the best ISAs here: https://forums.moneysavingexpert.com/discussion/401374

MoneySaverLog

Rather than doing the bank transfer himself, your friend should have completed a ISA transfer form available from the new provider to move the money from a old cash isa from a previous tax year to the new provider.

By withdrawing it that way your friend will have lost the ISA wrapper of the previous tax years isa. So that payment would have gone in as part of this years allowance.

Also it only applies if the new provider accepts transfers into it, not all providers do.

dunstonh

If you have an ISA you can put £5300 per year tax free.

Actually, it is £10,680. However, only £5340 can be placed in the cash ISA element.

milann

Many thanks for your prompt answers - this was all done in branch at Barclays - so I was quite surprised when they would only transfer the £300 as in my eyes it was already within the ISA rules and not a new investment. Thanks for clearing up the confusion.

Old_Wrinkly

milann wrote: »

Hi

Not sure if I'm being a bit thick or not - is there anyone out there who can help me understand ISA's (I have read the info on board but it still isn't making full sense!!) - friend has also read it and we have both interpreted what we've read differently LOL

Not sure which board you have been reading.
There is a sub-board of 'Saving and Investments' specifically called 'ISAs & Tax-free Savings'. Was that the one?

If you have an ISA you can put £5300 per year tax free.

This tax-year you are allowed to put £5340 in a Cash ISA, plus an equal amount in a Shares ISA (or the full £10,680 in a Shares ISA).

Now what happens if you transfer cash from one ISA to another without ever taking it out of an ISA - is this included in that amount or can you do this over and above as it has already been in an ISA?

Monies put into ISAs in previous years retain their tax-free ISA status when they are transferred and do not affect this year's ISA allowance. Monies put into an ISA this year DO of course count towards this year's allowance.

My friend inherited £5000 and put it into a new ISA yesterday - think it was 2.5% interest

Should have been able to get a better rate, but ...

then bank agreed to transfer the extra £300 from old existing ISA that has been dormant many years but would not transfer the rest of the balance from old ISA (about £800) said that would have to wait until April - is this right?

Not if as described. Any ISAs in previous years can be transferred from one bank to another, or from one ISA account at a bank to another at the same bank, without affecting this years allowance.
I suspect that the old ISA might now only be earning a minimal interest rate (0.1%?) following changes to the bank's account range. If that is the case, then the bank might be 'trying to help' by gradually moving your friend's funds to the higher paying ISA account. It would only be necessary to do this in the way described though if the new ISA didn't allow any transfer-in of previous years' ISA monies. So that is the first thing to check.
If it doesn't, there might be other alternative ISAs available at that bank (and there are certainly ones available elsewhere) that DO allow transfers-in.

This account is hopefully going to be added to on a more regular basis than in the past but don't want to commit to set payment or tie cash up

Then one needs to be sure of the Terms & Conditions for this particular ISA. Ensure it allows what your friend wants to do (and doesn't have any penalties for transferring elsewhere in future).
If the bank proceeds in the way described above, then your friend wouldn't be able to add anything till next April.

- will the whole amounts earn the ISA rate of interest or is it only the first £5300 and the rest earning less?

The whole amount in any particular ISA would normally earn the interest described. There might be some very odd examples out there that don't but I very much doubt that any high street bank's main products fall into such a category.
Of course your ISA holdings might not be all in the same account.
There are often good reasons for this.

In which case is it worth having an ISA with more than that in?

Yes. (Assuming that your money is not tied up, the interest rate is reasonable, and you actually pay income tax, so that being tax-free is worthwhile.)

Friend and myself aren't too sure which of us is correct - please help us settle this - thanks.

MoneySaverLog

I personally feel that HM Government should allow the full allowance of £10,680 to be saved however we like, instead of being forced to put it into shares if we wish to use that element of our allowance. Some would prefer the safety of cash, than risk the capital on share prices going down.