Closing a Cash ISA

Seamonster_2

Hope this isn't a daft question, but it's something I've never understood.

I have a Santander Cash ISA with around £10K in it. In a couple on months' time, I want to withdraw the cash to use for something else. However, I keep reading this advice on various websites: "To ensure that you do not lose the tax benefits of your ISA, you should not withdraw the funds from your ISA".

Why is this advice given? And does it apply to me if I just want to close the ISA and not transfer the cash to another one?

bryanb

Best to use any other cash savings first.

Archi_Bald

The advice is for people who wish to continue to keep their cash in ISAs but would like to change their ISA provider.

In your case, since you want to spend the money, just ignore the advice. You can withdraw the money without a penalty.

Seamonster_2

Thanks for that info.

I'm still intrigued by the loss of tax free benefits when transferring between ISAs. Is it purely about being able to transfer more than the annual ISA allowance? So if I decided I only wanted to spend half of my £10K and put the remaining £5K in a better-performing Cash ISA, I wouldn't need to do an ISA transfer - I could just withdraw the lot and invest in another one from scratch with no loss of tax benefits because the amount I'd be investing will be below the £5940 limit?

Lokolo

Seamonster wrote: »

Thanks for that info.

I'm still intrigued by the loss of tax free benefits when transferring between ISAs. Is it purely about being able to transfer more than the annual ISA allowance? So if I decided I only wanted to spend half of my £10K and put the remaining £5K in a better-performing Cash ISA, I wouldn't need to do an ISA transfer - I could just withdraw the lot and invest in another one from scratch with no loss of tax benefits because the amount I'd be investing will be below the £5940 limit?

Not if you have already deposited £5940 in ISAs this year.

Archi_Bald

If all you ever have to keep in an ISA is less than the annual allowance, then yes, you could withdraw and deposit yourself in the new tax year. But just the once each tax year, and don't forget the interest in your numbers, though.

People who wish to max their ISA allowance with new money year on year, or those wanting to change provider in the same tax year, however, do need to use the formal ISA transfer mechanism. It's not very onerous to fill in an ISA transfer form and monitor that the money arrives with the new provider.

Seamonster_2

Ah yes, I hadn't thought about contributions over and above the initial amount deposited. I get it now - cheers!

bluefield

the phrases " dont close an isa or you will lose the tax benefit" and
" no transfers in allowed" need to have explanatory notes attached imo. example; I recently had a 3 yr fixed cash isa at 3.7% mature with a balance of £5950. on looking for another isa I saw that the best fix was coventry bs at 2.25% 1 yr but "transfers in not allowed" so I settled for remaining with present provider and re-invested in an isa at 1.51% 1 yr. I now realise I should have closed the maturing isa and used the amount to open a new isa with cov bs. both actions contrary to usual advice and as far as I can see there is no loss of tax benefit and cov bs seem to have lost a customer as a result.
on third thoughts I will now close the new 1 yr isa and open a new cov bs isa. the 99 day interest penalty of the former will be outweighed by the higher interest rate of the latter. if I have missed anything I would be grateful to hear it.

colsten

If £5,950 is the total ISA balance, and if I didn't plan to put some £10K new money into an ISA in the next year, I would just take my money and put it into an interest paying current account or two. May be also dripfeed one or two regular savings accounts.

As and if ISA interest rates will ever get higher than what I can get elsewhere, it's easy enough to just put the £5,950 plus interest back into an ISA.

jimjames

bluefield wrote: »

if I have missed anything I would be grateful to hear it.

If you don't already have 5% current accounts and your ISA pays less than that then I wouldn't bother with an ISA at all.

If you are constantly fixing ISAs and have no need to access the money then a S&S ISA may be a better option than cash anyway.