Help to Buy ISA guide

eskbanker

In principle it's OK to fund from accounts held by others but check the Ts & Cs of the individual product that you/they have in mind as these always take precedence over articles on third party websites (or posts on forums)!

Meesa-ISA

Hi all,

Hoping someone here can shed some light on my question.

I want to open a HTB ISA but have already paid around £1,300 into an existing cash ISA this year. That account was opened years ago and contains about £12k in total. As the £1,300 was paid in in April, I have since been paid monthly interest on the total sum as well.

Looking at the government site (help to buy dot gov dot uk; I am not allowed to post links), it says this:

If you have paid into a cash ISA this tax year, in order to open a Help to Buy: ISA, you will have to transfer your active cash ISA to a Help to Buy: ISA. You can transfer up to £1,200 of your active cash ISA balance into your Help to Buy: ISA.

Anything more than this should be moved into either a stocks and shares ISA, an Innovative Finance ISA, or a non-ISA account.

This, to me, says that I can open a HTB ISA this year without moving my cash ISA and that I simply need to transfer £1,200 from the cash ISA into the HTB and the remainder somewhere else (does it matter which account or what I do with this money?)

However, I just called Virgin Money and they said that they do not allow transfers from cash ISAs and as far as they were aware, this was HMRC policy and would apply to all providers. They told me to wait until next year. So my questions are:

1. Has anyone done this before? Is it possible and allowed?
2. As the amount I've paid into my cash ISA this year is above the maximum I can transfer into a HTB ISA in the first month, what do I do with the excess?
3. Do I have to also transfer all interest paid into my cash ISA this tax year?
4. If this is not possible, do you have any suggestions for what I can do in the mean time, in order to have my money earning more interest than it is in my poor cash ISA?

Cheers

masonic

Meesa-ISA wrote: »

If this is not possible, do you have any suggestions for what I can do in the mean time, in order to have my money earning more interest than it is in my poor cash ISA?

Step 1: Pick a new cash ISA to serve as a very temporary home for your current year money (must accept transfers).
Step 2: Open it and fund it with a partial transfer consisting of your current year subscriptions (£1,300), which must be transferred in full (the ISA provider will deal with the issue of what, if any, interest needs to go along with the money you paid in).
Step 3: When the transfer is complete, withdraw all of the money and close the new cash ISA.
Step 4: Open a new HTB ISA and you are permitted under the self-transfer rules to treat it as your cash ISA for this tax year.

Edit: In fact, looking back over the rules, simply withdrawing the £1,300 you have paid in may be sufficient to allow you to start a new HTB ISA.

While you are at it, you might consider exploring the use of high interest current accounts for your other ISA money - easiest option is to simply close your existing ISA and start again with the HTB ISA, but the above steps would allow you to preserve the ISA status of the older money.

Meesa-ISA

masonic wrote: »

Step 1: Pick a new cash ISA to serve as a very temporary home for your current year money (must accept transfers).
Step 2: Open it and fund it with a partial transfer consisting of your current year subscriptions (£1,300), which must be transferred in full (the ISA provider will deal with the issue of what, if any, interest needs to go along with the money you paid in).
Step 3: When the transfer is complete, withdraw all of the money and close the new cash ISA.
Step 4: Open a new HTB ISA and you are permitted under the self-transfer rules to treat it as your cash ISA for this tax year.

Edit: In fact, looking back over the rules, simply withdrawing the £1,300 you have paid in may be sufficient to allow you to start a new HTB ISA.

While you are at it, you might consider exploring the use of high interest current accounts for your other ISA money - easiest option is to simply close your existing ISA and start again with the HTB ISA, but the above steps would allow you to preserve the ISA status of the older money.

Thanks. I must admit I'm still pretty confused. I phoned HMRC and they told me that they don't have information about such rules and I should speak to the bank. Well, Virgin Money basically said the opposite of that.

Were you suggesting those steps since that would then make my cash ISA for this year officially closed, leaving me free to open a HTB?

What I don't understand is what would happen if I was deemed to have (accidentally) cheated the system. Theoretically, could this be discovered in 5 years and my HTB ISA be branded invalid? If all checks are carried out at the start, perhaps I just go ahead and give it a go...

Oh yes, and I was already planning on looking into high interest current accounts. I was thinking of opening the TSB account which gives 5% interest on up to £2,000.

Edit: Halifax say this on their page (emphasis mine):

Transferring from another cash ISA – the transfer request must be made within 21 days of opening your Help to Buy: ISA, and can only be used to fund part or all of your initial deposit up to £1,000. Your current year’s subscriptions must be transferred in full as you are only allowed to fund one cash ISA per tax year. So to transfer current year funds into your new Help to Buy: ISA, you need to make sure that the balance of your current year funds are £1,000 or less. You could do this be transferring money above this amount to another, non cash ISA, account.

It does indeed sound like I could transfer all current-year funds over £1,200 into a non-ISA account, and then transfer the remainder into a HTB ISA, leaving no current-year funds in my cash ISA. Halifax seem to allow this, and then I could transfer my HTB ISA to Virgin Money who pay a higher interest rate.

masonic

Meesa-ISA wrote: »

Thanks. I must admit I'm still pretty confused. I phoned HMRC and they told me that they don't have information about such rules and I should speak to the bank. Well, Virgin Money basically said the opposite of that.

Were you suggesting those steps since that would then make my cash ISA for this year officially closed, leaving me free to open a HTB?

There is a clause in the ISA rules that allows customers to "self-transfer" one cash ISA per tax year, which can be used to get around ISA managers who don't accept transfers. Providing that you withdraw all of the money you paid in during the current tax year first, if you later open and pay into a second ISA within the same tax year, it will be treated as if it were a valid ISA transfer done between providers.

What I don't understand is what would happen if I was deemed to have (accidentally) cheated the system. Theoretically, could this be discovered in 5 years and my HTB ISA be branded invalid? If all checks are carried out at the start, perhaps I just go ahead and give it a go...

The self transfer will be discovered shortly after the end of this tax year. Since a one-off self transfer is permitted, the ISA subscriptions will not become invalid.

Edit: Halifax say this on their page (emphasis mine):

It does indeed sound like I could transfer all current-year funds over £1,200 into a non-ISA account, and then transfer the remainder into a HTB ISA, leaving no current-year funds in my cash ISA. Halifax seem to allow this, and then I could transfer my HTB ISA to Virgin Money who pay a higher interest rate.

This is an alternative and should work as well.

Meesa-ISA

masonic wrote: »

There is a clause in the ISA rules that allows customers to "self-transfer" one cash ISA per tax year, which can be used to get around ISA managers who don't accept transfers. Providing that you withdraw all of the money you paid in during the current tax year first, if you later open and pay into a second ISA within the same tax year, it will be treated as if it were a valid ISA transfer done between providers.


The self transfer will be discovered shortly after the end of this tax year. Since a one-off self transfer is permitted, the ISA subscriptions will not become invalid.


This is an alternative and should work as well.

Thanks for all your help, I think I only have one uncertainty left, and I'm not sure if you know any more than I do:

Going back to what Halifax say (they have a handy flowchart which I cannot link to), "All current year subscriptions in excess of £1000 must be withdrawn to a non-cash ISA account. Prior year subscriptions can remain in the existing ISA. The remaining up to £1k in current year subscriptions need to be transferred in full to a HtB: ISA". They mention the highlighted text a few times throughout that document, I just want to be sure that it's okay for me to withdraw the extra money over £1,000 (it will be around £300-400) into a regular current account, rather than another ISA (stocks and shares or innovative finance). And also, I'm not sure what I have to do with the interest I've been paid this year.

This would all seem simple now if only I had less than £1,200 from current year subscriptions (or £1,000 in the case of Halifax it seems).

masonic

Meesa-ISA wrote: »

Thanks for all your help, I think I only have one uncertainty left, and I'm not sure if you know any more than I do:

Going back to what Halifax say (they have a handy flowchart which I cannot link to), "All current year subscriptions in excess of £1000 must be withdrawn to a non-cash ISA account. Prior year subscriptions can remain in the existing ISA. The remaining up to £1k in current year subscriptions need to be transferred in full to a HtB: ISA". They mention the highlighted text a few times throughout that document, I just want to be sure that it's okay for me to withdraw the extra money over £1,000 (it will be around £300-400) into a regular current account, rather than another ISA (stocks and shares or innovative finance). And also, I'm not sure what I have to do with the interest I've been paid this year.

This would all seem simple now if only I had less than £1,200 from current year subscriptions (or £1,000 in the case of Halifax it seems).

You are not permitted to transfer part of your current year subscriptions to another ISA. It is all or nothing. It is ok to withdraw the £300-£400 to a non-ISA account (this will mean that you are still treated as having subscribed £1,300-£1,400 to an ISA this year so the money you withdraw will still count towards your annual allowance). In contrast, if you went the self-transfer route, you would be treated as not subscribing any money to the first ISA and would have your full allowance to play with - but this is only relevant if you intended to use your full ISA allowance this tax year, for example by using a S&S ISA or IF ISA.

As for the interest, you need to make sure that when you transfer your current year money to Halifax, it is no more than £1,000. A penny more and Halifax will refuse it for being over the limit. That means you will probably need to be a bit conservative and withdraw a bit more than you might think you need to so that you can be sure you won't end up transferring more than £1,000. This drawback would not apply to self-transfer, where you are in control of exactly how much is paid into your next ISA account.

Meesa-ISA

masonic wrote: »

You are not permitted to transfer part of your current year subscriptions to another ISA. It is all or nothing. It is ok to withdraw the £300-£400 to a non-ISA account (this will mean that you are still treated as having subscribed £1,300-£1,400 to an ISA this year so the money you withdraw will still count towards your annual allowance). In contrast, if you went the self-transfer route, you would be treated as not subscribing any money to the first ISA and would have your full allowance to play with - but this is only relevant if you intended to use your full ISA allowance this tax year, for example by using a S&S ISA or IF ISA.

As for the interest, you need to make sure that when you transfer your current year money to Halifax, it is no more than £1,000. A penny more and Halifax will refuse it for being over the limit. That means you will probably need to be a bit conservative and withdraw a bit more than you might think you need to so that you can be sure you won't end up transferring more than £1,000. This drawback would not apply to self-transfer, where you are in control of exactly how much is paid into your next ISA account.

I've gone ahead and removed money from my cash ISA so the current year subscriptions are under £1,000, opened a HTB account with Halifax, and requested a transfer of the current year funds. Will need a few days to be sure but I'm confident everything will go smoothly.

Thanks a great deal for your help, it's been very useful.

Next up after this is to look into high interest current accounts, as part of my 2016 finance sort-out!

Ashen

Hi,

A relative opened a Halifax current account and HTB ISA a few months ago to save monthly at a decent rate, on advice from me. Unfortunately he hasn't paid money into the HTB at all, just put the savings in the current account, and he has only just mentioned this.

It appears from the website that the initial deposit had to be within 21 days, and he's saying it won't let him transfer money in when he tries.

Any suggestions on what to do please?

masonic

Ashen wrote: »

Any suggestions on what to do please?

Either they can start paying £200 per month into the Halifax HTB ISA by standing order (forfeiting the initial lump sum), or close the Halifax account and open a new HTB ISA elsewhere.