Barclays Open Invest Stocks & Shares ISA

Nodge51

I have just received a letter from Barclays regarding my account basically saying that the way the account is administered is changing and that I have 3 options, 1 - Move my account to the new service, 2 - Sell my investments and close my account, 3 - Transfer my investments to an alternative service provider. I have had this account for many years and as I am coming up for retirement I'm thinking now might be the time to close the account and maybe put the money in a fixed term ISA. I haven't put any money in an ISA so far this year. The notes in the letter say that before I close my account I should consider possible unwanted tax implications when I sell my investments, particularly for ISAs. Does this sound like a reasonable plan and what are the tax implications they are referring to?
Thanks,
John

bowlhead99

Whether it's a reasonable plan to sell your investments and instead hold cash in an ISA wrapper depends on what you plan to do with the money in the short term or long term.

If your game plan was always to hold investments until you were coming up to retirement and then turn them all into cash to spend over the first few years of retirement, then transferring out to a cash ISA is probably a reasonable plan.

If doing that, you don't need to close, get cash, and manually open a new cash ISA, you can simply transfer from Barclays to the new cash ISA provider, keeping the existing ISA protection and keeping your current year ISA allowance unused. However, you might prefertto use a "manual", non-transfer approach because some ISA providers offer better deals on new subscriptions of £15k or less, than they offer to people transferring large amounts of "old" existing ISAs.

If you want to have the money as cash instead of investments, it does depend on the amounts involved, as if you aren't going to be a high rate taxpayer on your interest income over the next few years and you haven't maxed out all the high-interest current accounts from all the various different banks yet, you might find better, non-ISA, homes for the cash (Santander 3% on £20k instant access, 5% at TSB on smaller balances, etc)

However, for many people these days, their life after retirement might be expected to last 20-40 years and therefore selling investments to get cash and hold it as cash for many years (whether ISA or unwrapped savings account or current account or stuffed under the mattress) may be quite damaging for their overall long term wealth.

You are unlikely to beat inflation by any significant amount by simply putting cash on deposit, so your money would not grow in value in real terms over the next 20-40 years, and quite likely you or your heirs would end up with less money in terms of spending power, than you have today.

Whereas by holding a portfolio of investments, you would be expected to be able to grow your wealth generating returns higher than inflation - albeit with some investment risk and volatility of the value at a point in time.

So, as we don't know your lifestyle plans or needs or attitude to investment risk, we can't really comment on whether selling your investments to get a fixed term fixed rate cash ISA is going to be suitable and "a reasonable plan".

If you want to keep investments rather than cash, you'd have to consider whether the Barclays product is any good compared to its competitors. Brokers and platform comparisons are discussed here all the time with the Barclays' offering not being seen as a "best buy". It's likely that another S&S ISA would be cheaper ; or more feature-packed for the same cost.

If you are considering keeping your assets as investments rather than a cash rainy-day fund, it could be quite efficient to contribute them to a pension fund and benefit from the tax relief. Private pension funds can be accessed from age 55 so if you're already retirement age it can be a good wheeze to make contributions now, knowing you can withdraw quite flexibly without needing to lock the money away for a long time if you don't want to.

To go back to your question about tax implications of closing your investment ISA. You would not need to pay taxes just for closing the account and getting your money out. The investments were tax free for all the time they've been inside the S&S ISA. However, the warning from Barclays is that if you close the ISA and then choose to go and buy similar investments outside the protection of an S&S ISA or pension allowance, you will be subject to tax on any future interest or dividends or capital gains you make from them.

Of course, depending on your personal circumstances and level of other income, you might find that there is no tax to pay on the interest or the dividends and the amounts of gains you make will easily fit inside your annual capital gains tax allowance if you manage it carefully or don't have a large amount invested anyway. Generally for investments you might as well have them in a cheap ISA wrapper rather than holding them unwrapped, because if you pick a cheap provider it is not a lot of cost (in some cases nothing) to have an ISA version of the account rather than an unwrapped one, and it saves you ever worrying about taxes.

Nodge51

Many thanks for that comprehensive reply. Food for thought there.

John