Is it possible to close one new ISA and reopen another in the same tax year?

masonic

This came up in discussion a few days ago. As we are all aware, the rules state that you can only pay into one cash ISA per tax year. However, this is not the case, as you can pay into an ISA, transfer it to a new supplier and top up that new account all in the same tax year.

That discrepancy has led me to believe, perhaps erroneously, that the 'real' rule is just that your current years funds must not be split over more than one provider. The obvious corollary of that statement is that if you open an ISA and put in, say, £100, then close it (without transferring) and you would be free to contribute £2900 to an alternative ISA in the same tax year.

Perusing the HMRC website, I came up with the following in their FAQ section:

http://www.hmrc.gov.uk/isa/faqs.htm

Q. What happens if I change my mind?

A. Some ISA managers will offer ISA products that give you a 'cooling off' or cancellation period (usually 7 or 14 days), in which you can change your mind about buying. Provided you cancel within the period set out by that ISA manager the payment made will not count as a subscription into an ISA in that tax year. If you change your mind within that time, you will be free to put money into an alternative ISA in the same tax year with the same or a different manager.

If you change your mind after the ‘cooling-off’ period, or in a case where there is no cancellation or cooling off period, the money you have invested will count towards your ISA annual subscription limit and your choice of a new ISA will be restricted to another ISA within the same component in that tax year. However, you could transfer the existing ISA to another ISA manager.

So, would anyone care to join me in speculating what the author of that highlighted statement actually meant to convey? Could it possibly be "If you change your mind...the money you have invested will count towards your ISA annual subscription limit and your choice of [subscription to] a new ISA will be restricted [STRIKE]to[/STRIKE][within] another ISA within the same component in that tax year."

MarkyMarkD

No, your understanding is wrong.

You cannot subscribe NEW money to more than one ISA in one year unless you have transferred the first one's funds to the second one.

The way you would like it to work would be far more sensible, but it isn't how the legislation works.

I have to say that the paragraph you've highlighted in bold certainly doesn't explain it properly.

ManAtHome

I read the highlighted paragraph as once you've subscribed to any mini or maxi ISA, you're stuck with it (can't put £1k in a maxi s&s, then decide to open a cash mini). It does read that you could open several of each type though.

masonic

ManAtHome wrote: »

I read the highlighted paragraph as once you've subscribed to any mini or maxi ISA, you're stuck with it (can't put £1k in a maxi s&s, then decide to open a cash mini). It does read that you could open several of each type though.

I've read it several times and interpreted it differently each time. I know they are wont to be ambiguous, but it is just plain gibberish.

I thought the same as you, until I noted their definition of 'component': "There are two ways - called 'components' - in which your money can be invested: ‘cash’ and ‘stocks and shares’ (both of which can include some specially designed life insurance policies)."

Now take that quote: "If you change your mind...your choice of a new ISA will be restricted to another ISA within the same component in that tax year." Remember, component = cash or S&S. So, apparently once you have paid into a cash ISA, if you change your mind and close the account, you are restricted to opening another ISA within that 'component' (cash). For anyone speaking English as a first language, it can only be interpreted that you therefore can open a new cash ISA, but not a S&S one. :rotfl:

I really do think the person who wrote that FAQ thought "restricted to opening" = "prevented from opening". That is the only way that statement would (a) make sense, (b) not suggest you can do something you cannot. Either that or they did not understand themselves, eh?

Anyway, it would appear that, open an ISA with £1, then close it and you lose your £3000 allowance for that year. Cheers, MMD for clarifying.

ManAtHome

Yes, I was taking component to mean either mini cash, mini s&s, maxi s&s, or insurance-thingy (has anyone ever used the £1k insurance thingy?). So once you'd decided whether to "maxi" or (2) "mini"s you couldn't change your mind.

But is a cash ISA actually closed if you withdraw all the cash? If it's the same "other thread" as I'm thinking of (somebody had paid in around £2,500 then withdrew it), it sounded like the ISA remained open even though "empty" (presumably discarded at the end of the tax year?).

masonic

ManAtHome wrote: »

But is a cash ISA actually closed if you withdraw all the cash? If it's the same "other thread" as I'm thinking of (somebody had paid in around £2,500 then withdrew it), it sounded like the ISA remained open even though "empty" (presumably discarded at the end of the tax year?).

It stays open unless you close it (or the bank closes it in response to you not meeting any minimum balance requirements). In the thread I was alluding to, someone had put £200 in an ISA this year, but wanted to open the new A&L one. Since A&L do not accept transfers for that account, it seemed it could not be done until after 5th April. The notion of closing the original ISA was suggested, but none of us knew at the time whether the remaining £2800 allowance would be retained. Apparently not.

MarkyMarkD

I'm pretty darned sure that the person who drafted that HMRC FAQ reply actually said the opposite to what they meant. I have e-mailed HMRC accordingly.

mleonard79

Hi Everyone,

It was me who initially asked this question on another thread on behalf of a friend who has an old A&L ISA which she inadvertantly has put £200 into this tax year due to a standing order she thought she had stopped. She's recently sold some shares and has just under £6K to put into savings so an ISA is the obvious choice. So she decided to open the new A&L 8.1% ISA with the Premier Account and wanted to know if she could put £2.8K into it this tax year and then top it up to £5.8K after April 6th. A&L basically said that she could open the new ISA this tax year but not fund it until next tax year so this is what she's done. It does mean she can only have £3K in the 8.1% ISA but it's better than nothing.

If what I'm reading in this thread is right the old (rubbish interest) A&L ISA with the £200 could perhaps be transferred to a provider with a better interest rate and then topped up with the £2.8K - is there enough time to get this done before the end of the tax year though? I've looked at the Kent Reliance account and the Yorkshire BS e-ISA for her as these seem to be the highest payers for transfers in (it's a shame you can't transfer into the better paying ones!) I thought as Yorkshire is an online one it might get processed quicker but I'm just a bit worried it might not get done in time as from reading the rules on the e-ISA it says the other provider has 30 days to transfer over the funds. If A&L took this full 30 days though that would mean the funds wouldn't be transferred until next tax year for which she already has the 8.1% ISA - could this happen and leave her contravening the ISA rules?? Thanks for any help - it really is a bit of a minefield especially when HMRC give such contradictory rules themselves! Thanks.

Regards

Michelle

YorkshireBoy

Hi Michelle,

mleonard79 wrote: »

I thought as Yorkshire is an online one it might get processed quicker

When you apply for a YBS e-ISA, you're given your account number at the end of the application. You'd then print off the YBS form, write across the top "transfer in", and post it off to YBS.

If A&L took this full 30 days though

A&L actioned my recent transfer out request on day 5, and YBS received the funds on day 8.

that would mean the funds wouldn't be transferred until next tax year for which she already has the 8.1% ISA - could this happen and leave her contravening the ISA rules??

But it wouldn't matter, since this is 2006/07 tax year money.

The only thing I'm not sure of is if you have to complete the transfer in (of your £200) before you can send the remaining £2,800 of this years money. Maybe someone else can help here?

I've PM'd you with the name and direct dial number of one of the managers in the YBS ISA transfer department.

ManAtHome

Think you'd be safer topping up the old A&L one, then moving it.

MarkyMarkD

I think that ManAtHome is right. I don't think you can deposit the £2,800 until your transfer of the £200 has completed, as otherwise you would have two funded ISAs for the 2006/07 in existence at the same time which is not allowed.