ISA confusion - can someone please unpick?!

wrenlegs

I dont know why Im finding this so hard to get my head around, but I guessed this would be the best place to have it unravelled.

I invested 5k in a cash ISA on 15th March this year. It had a 1% introductory bonus p.a. which will come to an end 12 months after I opened the account. I know this means that I can switch to a better paying ISA. I think the thing Im having trouble with is, if I withraw my money on 15th March 2012 (12 months after I opened and when it drops to a low interest) do I have to wait until 6th April (the next tax year) to re-invest or do I have to reinvest quickly to get it in before 6th April???

Also, as I will be re-investing the same money, do I have to find a transfer only ISA? I dont have the money to open another (in addition ISA). Surely, Im withdrawing cash and so I could then open any other cash ISA (not necessarily a trasnfer only). This confuses me.

If anyone can explain I would be very grateful

MoneySaverLog

Don't withdraw it...

Use a new providers transfer form, that way if you chose you can invest more next year without using up next years allowance on what you've saved this tax year.

Next tax year from the 6th April 2012 you'll be able to invest another £5,640 on top, so over the two years you'll have a cash isa allowance of £10,980 by saving the maximum over the 2 years. If you withdraw manually you'll lose the tax wrapper for this years allowance and will only be able to save up to £5640 next year.

MoneySaverLog

Also say you invested £3,000 this tax year, you withdraw £3,000 and open a new ISA in the same year.

Then the maximum you can put into your new ISA will be £2,340 - you've lost the £3,000 by not using the transfer form.

HTH

Mikeyorks

wrenlegs wrote: »

If anyone can explain I would be very grateful

The norm is that you transfer ISAs ..... otherwise you lose the tax benefit that accrues over a period of years.

However - if you placed the £5k during 2010-11 that means you haven't used your allowance (£5340) for this year (11-12)? So - if you're confident you're simply going to be reusing that same cash. Then you're losing nothing by closing the account 15th March 2012 - rather than transferring it. As that possibly gives you access to some ISAs that normally don't accept transfers.

You can - and should - then put that into a new ISA prior to 5th April 2012. As you're then utilising (most of) the 11-12 allowance, which you otherwise lose. That means you still have your full 12-13 allowance (£5640) available after 6th April 2012 ..... if fresh funds become available?

wrenlegs

OK. I think I get it. Basically, transfer is the best option to ensure I keep my accrued ISA value. I opened an ISA last year (2009-10) and was meaning to invest a large sum, but ended up with just £10 in there for the year Can I move that into the one I will transfer this years 5k into (in other words, can I amalgamate by transfer 2 ISAs?) Sorry for all the Qs - you have been extremely helpful:T

pqrdef

wrenlegs wrote: »

OK. I think I get it. Basically, transfer is the best option to ensure I keep my accrued ISA value.

Point is, the taxman puts a limit on contributions. If you've got plenty of money and you want to max out the contributions limit, you have to avoid drawing money out and paying it back in, because that just gets the same money counted twice. But if you aren't maxing out your contributions, then it doesn't matter.

wrenlegs wrote: »

Can I move that into the one I will transfer this years 5k into (in other words, can I amalgamate by transfer 2 ISAs?)

You could, but they'll think you're having a larf. Since the 2011-12 limit is £5340, you can transfer £5K and top it up with cash, so the paperwork involved in transferring the £10 would be pointless.

MoneySaverLog

Mikeyorks wrote: »

So - if you're confident you're simply going to be reusing that same cash. Then you're losing nothing by closing the account 15th March 2012 - rather than transferring it. As that possibly gives you access to some ISAs that normally don't accept transfers.

You can - and should - then put that into a new ISA prior to 5th April 2012. As you're then utilising (most of) the 11-12 allowance, which you otherwise lose. That means you still have your full 12-13 allowance (£5640) available after 6th April 2012 ..... if fresh funds become available?

But if you draw £5,000 out in this tax year, rather than do a transfer using the new providers form, you'll only be able to put £340 in before the 6th April. After the 5th April the new allowance will be available, so you could put it all back in then.

wrenlegs

Sorry to be so tedious about this...

Given that I only have less than a month before the new tax year, would I be better off leaving it in the ISA until April 6th (or whenever the new tax year starts) and then transferring it to a new high rate cash ISA (so, in effect my money would only earn very little interest for 15 days)? What happens if I leave my money in for over a year? Im not locked in am I (to the new lower rate)? And then, Id remove my £10 cash ISA from 2 years ago and just stick it int o my new transferred cash ISA. I hope this all makes sense (I cant believe how difficult Im finding this!). Your explanations have been invaluable :beer:

MoneySaverLog

The tax year ends on the 5th April and starts on the 6th April. So there is plenty of time.

Some fixed term ISA's paying the higher rates have penalties that apply if you close the ISA before the fixed term period is up, you'll have to check each ISA's terms and conditions for these.

You'll need to keep an eye on the rates and look at transferring when the rates drop. It's always best to transfer the ISA rather than draw the money out to pay into a new one if you can.

MoneySaverLog

PS If you're transferring then you can transfer the ISA at anytime, this tax year or next. Then make payments into another ISA in the new tax year up to that years limit.

wrenlegs

:jI think Ive got it! Thank you all so much for your help and advice. I will now wait and look out for an easy access ISA to transfer into. Just dug out my £10 ISA. Its made £1.60 :DIll withdraw it and use it to put toward next years new money. Im right in thinking that if I transfer this years its classed as 'old money' (if Ive got it right ) so I can save the maximaum amount next year NOT counting the money I saved this year. Ill stop neow before I confuse myself (and you) again