Clarifying points on a cash ISA

psychic_teabag

innovate wrote: »

That's correct, it doesn't matter at all which year any withdrawal would go against because your allowance for the current year is only ever reduced by deposits you make.

I think it can matter, if you want to do a partial transfer from the ISA, transferring the whole of the current year's subscriptions.

Suppose you had a balance of 1500 on 1st April. Add 1000 on 10th April and withdraw 500 on 15th. Balance is now 2000, and you can subscribe another 4670 this year. Suppose you want to do a partial transfer of this year's subscriptions to another provider.

If the withdrawal on the 15th was against last years balance, you must transfer (at least) 1000 (the deposit on the 10th). But if the withdrawal was against this year's subscription, you only need to transfer 500.

Sensory

psychic_teabag wrote: »

I think it can matter, if you want to do a partial transfer from the ISA, transferring the whole of the current year's subscriptions.

Suppose you had a balance of 1500 on 1st April. Add 1000 on 10th April and withdraw 500 on 15th. Balance is now 2000, and you can subscribe another 4670 this year. Suppose you want to do a partial transfer of this year's subscriptions to another provider.

If the withdrawal on the 15th was against last years balance, you must transfer (at least) 1000 (the deposit on the 10th). But if the withdrawal was against this year's subscription, you only need to transfer 500.

Can you even specify which year's balance a withdrawal goes against? It's a very theoretical scenario. I would assume £1000 would have to be transferred regardless, because £1000 was deposited for the current year, and the balance of the account was above £1000.

innovate

psychic_teabag wrote: »

I think it can matter, if you want to do a partial transfer from the ISA, transferring the whole of the current year's subscriptions.

Suppose you had a balance of 1500 on 1st April. Add 1000 on 10th April and withdraw 500 on 15th. Balance is now 2000, and you can subscribe another 4670 this year. Suppose you want to do a partial transfer of this year's subscriptions to another provider.

If the withdrawal on the 15th was against last years balance, you must transfer (at least) 1000 (the deposit on the 10th). But if the withdrawal was against this year's subscription, you only need to transfer 500.

No it doesn't matter how much you withdraw. Your current year's allowance is never altered by any amount you withdraw. All that counts is your deposits in the current year.

psychic_teabag wrote: »

Suppose you want to do a partial transfer of this year's subscriptions to another provider.

That's where you go wrong - - if you want to transfer any of the current year's deposits, you must transfer all of them.

If you want to transfer the money you have put into your ISA in the current tax year, you must transfer all of it.

Source: http://www.hmrc.gov.uk/isa/faqs.htm#6

innovate

Sensory wrote: »

Can you even specify which year's balance a withdrawal goes against?

On most transfer forms I have seen, you can specify whether you want to transfer current year's deposits. If so, they tell you you must transfer all of them.

Sensory

innovate wrote: »

psychic_teabag wrote: »

Suppose you want to do a partial transfer of this year's subscriptions to another provider.

That's where you go wrong - - if you want to transfer any of the current year's deposits, you must transfer all of them.

I believe that one line was incongruent with the example psychic teabag was trying to demonstrate. I'll try to elaborate.

Balance of £1500 on the 1st April (2012/2013).
Deposit of £1000 on the 10th April (2013/2014).
Balance is now £2500.
Withdrawal of £500 on the 15th April.
Balance is now £2000.

If you then wanted to transfer the current year's subscription, the amount would depend on which balance the withdrawal counted against.

As I said previously, I would assume £1000 would have to be transferred regardless, because £1000 was deposited for the current year, and the balance of the account was above £1000.

thenudeone

The ISA limit doesn't apply to balances, it applies to subscriptions.

If you have put anything in during the the current year, then regardless of how much your old provider decides to transfer if you ask them to transfer all the current year's subscriptions, the amount your new provider will allow you to contribute after the transfer is:

The annual limit
LESS
what you added to the old ISA this year (which may be different to the balance transferred).

There is a little-known rule which allows you to close an ISA to which you have contributed in the current year, withdraw all the cash, and then legitimately start again with a new ISA in the current year without doing a transfer. It's a bit like an extended cooling off period.

It is explained here https://forums.moneysavingexpert.com/discussion/3917321
and the statute is here http://www.legislation.gov.uk/uksi/2002/3158/regulation/4/made

I describe it as a "concession" because although it is written into tax law, it's against the spirit of the process because the only way you can use it is by lying to your new provider when they ask: "Have you subscribed to an ISA in the current tax year?". If you say YES, they will almost certainly refuse to accept the application.

However, if you have deposited new money into an EXISTING ISA in the current year, it appears that this "concession" might only apply provided you close and withdraw the whole account balance (including previous year subscriptions).