Multiple ISAs – what are the rules now?

Larry_M

Hi,

Earlier this tax year I set up a new Cash ISA with a new provider because of the low rate I was getting with my existing one, and I transferred in most of the value into the new one. Two questions arising from this:

1. Am I allowed to pay into two cash ISAs in one tax year? I had already been paying into the existing one and I paid a small amount into the new one just to get it started.

2. I’ve now decided to take the plunge with a Stocks and Shares ISA, can I transfer part of the value of the new cash ISA into the S&S ISA?

I think there are some regulation changes due in the Autumn (?) and I’m not sure of the status of all of this at the moment.

Archi_Bald

Larry_M wrote: »

H
1. Am I allowed to pay into two cash ISAs in one tax year? I had already been paying into the existing one and I paid a small amount into the new one just to get it started.

You are not allowed to pay into more than one cash ISA in the same financial year.

A couple of providers, such as Nationwide, do however offer to manage your annual cash ISA as several accounts. This is mostly a gimmick but I mention it for completeness.

Larry_M wrote: »

2. I’ve now decided to take the plunge with a Stocks and Shares ISA, can I transfer part of the value of the new cash ISA into the S&S ISA?-

you must keep the deposits of the current tax year together. I.e. you cannot partially transfer any of it - it is all or nothing.

These have been the rules forever, and they are not likely to change in the foreseeable future.

Larry_M

Uh-oh, looks like I could be in trouble with HMRC then, although it was only £10 to start it off. How would they even know then I wonder

naedanger

Larry_M wrote: »

How would they even know then I wonder

NI numbers are held for every ISA so it will be trivial for the HMRC to match the account to the person. (I know that they can also, at least some of the time, match other accounts to the individual since they once spotted when I made a mistake on a non-ISA account.)

That said it must be an extremely common mistake. The second payment will be invalid. (You should probably contact your tax office, but given the small amount I would be tempted just to close the second account asap.)

Larry_M

Just to clarify then. I had £15000 in Cash ISA 1 with Provider 1, and set up Cash ISA 2 with Provider 2, completing a transfer form for £12000 of the amount in Cash ISA 1 (+adding £10).

In order to get money from Cash ISA 1 into a new S&S ISA I would ordinarily have two choices
a) Complete a transfer form when setting up the new S&S ISA for all the £12000 currently in Cash ISA 2
or
b) Withdraw from or close Cash ISA 2 and put it into the new S&S ISA

Normally option b) would be a big no-no, but a further complication is that I have already paid £5000 into Cash ISA 1 so far this year, which means that my only option in reality is to withdraw, say, £10000 from Cash ISA 2 and put it into the S&S ISA

Have I got this right?

Archi_Bald

If I understand correctly, you have £12K from previous years that you transferred to a cash ISA this financial year. Subject to the sending and receiving ISA providers supporting partial transfers, you can request a transfer of some or all of this £12K to an S&S ISA. The fact that you deposited £10 into the cash ISA that your money was transferred into is not relevant for this new transfer.

If you mess about with withdrawing funds from your ISA, they will lose their ISA wrapper.

As to how HMRC will know that you deposited into 2 cash ISAs this year: all ISA providers have to submit a report to the HMRC once a year, each of which will contain your unique NI number.

Even if the reports didn't contain your NI number, HMRC can easily find out everything about all your accounts if they want to http://www.telegraph.co.uk/finance/personalfinance/tax/11697816/What-does-the-taxman-know-about-you-your-finances-and-your-lifestyle.html. Big Brother is with us.

Larry_M

Archi_Bald wrote: »

If I understand correctly, you have £12K from previous years that you transferred to a cash ISA this financial year. Subject to the sending and receiving ISA providers supporting partial transfers, you can request a transfer of some or all of this £12K to an S&S ISA.

In fact I had £10000 in the first ISA at the end of the last tax year and paid in £5000 in the current year. Then did a partial transfer of £12000 to the new ISA. Does this mean I can do a partial transfer of up to £10000 (if sending and receiving providers accept?).

I'd like to think that HMRC wouldn't quibble about £10 given the billions they let Vodafone off!

Archi_Bald

Larry_M wrote: »

In fact I had £10000 in the first ISA at the end of the last tax year and paid in £5000 in the current year. Then did a partial transfer of £12000 to the new ISA.

If that's what you did, then you should assume that you transferred the entire new £5,000, plus £7,000 old ISA money. The £3,000 remaining in this ISA (let's call it ISA A) is all considered old money now.

If you transferred the £12K into the ISA into which you also paid the £10, all your current year's contribution (£5,010) now sit in that ISA (let's call that one ISA . Your remaining allowance for the year is £10,230 and you would not have breached any ISA rules.

If all this is correct, you could

1. transfer some or all of the money in ISA A elsewhere
2. transfer anything above £5,010 from ISA B to elsewhere. If your balance in ISA would be less than £5,010 after the transfer, you'd have to transfer at least £5,010

But it all depends on what you actually did do. I think it would be a lot easier if you gave all the details of your 2015-16 deposits and transfers, and the sum(s) of money you want to transfer to S&S.

Larry_M

Archi_Bald wrote: »

If that's what you did, then you should assume that you transferred the entire new £5,000, plus £7,000 old ISA money. The £3,000 remaining in this ISA (let's call it ISA A) is all considered old money now.

If you transferred the £12K into the ISA into which you also paid the £10, all your current year's contribution (£5,010) now sit in that ISA (let's call that one ISA . Your remaining allowance for the year is £10,230 and you would not have breached any ISA rules.

If all this is correct, you could

1. transfer some or all of the money in ISA A elsewhere
2. transfer anything above £5,010 from ISA B to elsewhere. If your balance in ISA would be less than £5,010 after the transfer, you'd have to transfer at least £5,010

But it all depends on what you actually did do. I think it would be a lot easier if you gave all the details of your 2015-16 deposits and transfers, and the sum(s) of money you want to transfer to S&S.

Thanks for your help. Here is exactly what I did:

At 5th April this year I had £9143 in ISA A
Up to 15th June I had paid in a further £5600 to ISA A
On 16th June I created ISA B (different provider) and did a partial transfer of £12000, also adding the £10
Since then I have added a further £200 to ISA A
So at the time of writing I have £2943 in ISA A and £12010 in ISA B
I was looking to invest £10000 in a S&S ISA, but that was just a number I picked, I'm flexible on that

Archi_Bald

Larry_M wrote: »

Thanks for your help. Here is exactly what I did:

At 5th April this year I had £9143 in ISA A
Up to 15th June I had paid in a further £5600 to ISA A
On 16th June I created ISA B (different provider) and did a partial transfer of £12000, also adding the £10
Since then I have added a further £200 to ISA A
So at the time of writing I have £2943 in ISA A and £12010 in ISA B
I was looking to invest £10000 in a S&S ISA, but that was just a number I picked, I'm flexible on that

OK, so you did breach ISA rules by depositing £200 into ISA A after you had - effectively - transferred your earlier current year's deposit into ISA B.

Might be best if you contact HMRC and ask them what to do before things get more complicated than they are already.

Larry_M

Archi_Bald wrote: »

Might be best if you contact HMRC and ask them what to do before things get more complicated than they are already.

I phoned the HMRC helpline (0300 200 3312), they weren't able to deal with the details but their script was to say that I shouldn't do anything to try to correct it and that HMRC would write to me at the end of the year if necessary. But they did give me an email address I could use to query it further (savings.audit@hmrc.gsi.gov.uk), which I have done, so it will be interesting to see what they say.

I was going to simply withdraw the £200 but haven't for the time being.