Paying into ISAs with different providers

masonic

Reed_Richards wrote: »

My reading of what Nationwide says is different. All the Nationwide ISAs are cash ISAs of one sort or another. So if you invest in a Nationwide cash ISA you can put money into more than one of their ISA "wrappers" and move it around. But if you withdraw ISA money from Nationwide that's a different situation completely. I doubt it can go to another ISA provider.

There seems to be some confusion between Nationwide's "Split ISA" offer, and the ISA flexibility introduced a couple of years ago in the ISA regulations.

What Nationwide says does not override a customer's statutory rights. If Nationwide chooses to offer the flexible withdrawals (it can choose not to, but it has chosen to offer them), then any money flexibly withdrawn that relates to the current tax year must by law not be counted towards the annual limit. This money then becomes available to subscribe to a different type of ISA subject to the normal limits (e.g. no more than £4k into a LISA per tax year).

This can all be confirmed with HMRC if anyone is in any doubt, or they can verify it for themselves in the below HMRC guidance:

"Withdrawals of current year subscriptions, can effectively be replaced in any current year ISA, but cannot breach the 'one ISA of each type per tax year' rule.
https://www.gov.uk/guidance/manage-isa-subscriptions-for-your-investors#subscriptions-that-do-not-count-towards-the-annual-subscription-limits

masonic

Gordon_the_Moron wrote: »

This leads to the stupid situation you've encountered. You can perfectly legally pay into a cash ISA for this year and LISA but you can't transfer from cash ISA to LISA (unless it's all of both accounts, cash and H2B)

If you know about it though it's a non issue as there's nothing to stop you flexibly withdrawing from Nationwide to fill the Lisa.

This is exactly what I've been trying to communicate, rather unsuccessfully it seems, in my last three posts.

Alexland

Gordon_the_Moron wrote: »

You can only pay into 1 cash LISA per tax year (I'm guessing you can split the 4k LISA allowance between cash and S&S though I've not tried)

You are only allowed to contributie to one LISA type in any given tax year. As such the only way to hold both asset classes is withing a DIY S&S LISA but the interest rate for the cash balance will be negligable. See first page of https://www.gov.uk/individual-savings-accounts

Alex

Reed_Richards

masonic wrote: »

....
This can all be confirmed with HMRC if anyone is in any doubt, or they can verify it for themselves in the below HMRC guidance:

"Withdrawals of current year subscriptions, can effectively be replaced in any current year ISA, but cannot breach the 'one ISA of each type per tax year' rule.
https://www.gov.uk/guidance/manage-isa-subscriptions-for-your-investors#subscriptions-that-do-not-count-towards-the-annual-subscription-limits

Masonic did not mention that this single-sentence paragraph is in the Flexible ISAs section so applies only to withdrawals from Flexible ISAs, apparently. It's rather a throw-away line for such an important point. The use of the word "replaced" makes it slightly ambiguous but the "cannot breach..." clause certainly seems to indicate that you can withdraw money from a flexible ISA and re-invest it in a different type of ISA without that money counting twice against your ISA limit - just as masonic says. That's major concession compared to previous ISA rules.

In the Martin Lewis article https://www.moneysavingexpert.com/savings/flexible-ISAs/ it says much the same:

Remember, flexibility works on three types of ISAs: cash ISAs, innovative finance ISAs and cash held in a stocks and shares ISA. If you withdraw current year's cash from one type, you are allowed to replace it in another type, eg, withdraw from a cash ISA, replace in an innovative finance ISA.

No mention of LISAs there but perhaps they weren't around with the article was written?

masonic

Reed_Richards wrote: »

Masonic did not mention that this single-sentence paragraph is in the Flexible ISAs section so applies only to withdrawals from Flexible ISAs, apparently. It's rather a throw-away line for such an important point. The use of the word "replaced" makes it slightly ambiguous but the "cannot breach..." clause certainly seems to indicate that you can withdraw money from a flexible ISA and re-invest it in a different type of ISA without that money counting twice against your ISA limit - just as masonic says. That's major concession compared to previous ISA rules.

In the Martin Lewis article https://www.moneysavingexpert.com/savings/flexible-ISAs/ it says much the same:

If you'd been following the discussion, you'd see I'd pointed out that this was a feature of flexible ISAs in posts #7 and #9 (edit: and indeed in the first two paragraphs of post #12 to which you replied). And yes, the ISA flexibility rules were a major concession on previous rules.

I give up.

Reed_Richards

Suppose I had paid £20k into a Cash ISA this tax year and then changed my mind and decided that I wanted to put half into a Stocks and Shares ISA instead. If the Cash ISA was flexible then it seems I could just withdraw the £10k and invest in the S&S ISA. If it was not flexible I would have to transfer the entire £20k into a flexible cash ISA. Then withdraw £10k for an S&S ISA then transfer the remaining £10k back to the inflexible cash ISA. That is so perverse and nonsensical I am having trouble getting my head around it. Sorry masonic.

masonic

Reed_Richards wrote: »

Suppose I had paid £20k into a Cash ISA this tax year and then changed my mind and decided that I wanted to put half into a Stocks and Shares ISA instead. If the Cash ISA was flexible then it seems I could just withdraw the £10k and invest in the S&S ISA. If it was not flexible I would have to transfer the entire £20k into a flexible cash ISA. Then withdraw £10k for an S&S ISA then transfer the remaining £10k back to the inflexible cash ISA. That is so perverse and nonsensical I am having trouble getting my head around it. Sorry masonic.

Your understanding is absolutely correct. I guess the original intention was to make all ISAs flexible, but I suppose there was lobbying by ISA providers to make it optional.

The alternative would be to wait until after the end of the tax year when you could transfer half of it as previous year subscriptions. This wouldn't be an option if the destination account was a LISA though as all transfers from non-LISA accounts are subject to the annual £4k limit.

GeorgeEade

Thanks everyone for your help on this. @masonic I've spoken to Nationwide about flexibly withdrawing from them and depositing into Skipton, and it seems ISA flexibility does allow this.

However, they are now saying that I can't invest with more than one provider in the same tax year. I'm not sure if this is correct, because last year I managed to contribute to my existing Nationwide ISA (which I have had for years), as well as open and deposit into a new Skipton LISA. Point #6 in MSE's article on Lifetime ISAs also says this is allowed. (Apparently as a new user I'm not allowed to post links.)

Am I misunderstanding this "multiple providers in the same tax year" restriction? Is it actually something like you can't open two products with two different providers in the same year?

I think I'm just going to take @masonic's advice and withdraw £4k from Nationwide and pay it into Skipton and see what happens.


Edit: Just tried to move money from my Nationwide ISA to my Nationwide current account (so that I can make the payment from there to Skipton) using online banking, and it's giving this warning:

As of the 6th April 2016: Any funds that are withdrawn from an ISA and paid into a non-ISA product may no longer be considered to be tax-free savings. You should not withdraw funds you wish to transfer to another ISA; instead, you'll need to contact the new provider who'll arrange the transfer for you.

I'm guessing this warning is either outdated or not applicable to my situation?

masonic

GeorgeEade wrote: »

Thanks everyone for your help on this. @masonic I've spoken to Nationwide about flexibly withdrawing from them and depositing into Skipton, and it seems ISA flexibility does allow this.

However, they are now saying that I can't invest with more than one provider in the same tax year. I'm not sure if this is correct, because last year I managed to contribute to my existing Nationwide ISA (which I have had for years), as well as open and deposit into a new Skipton LISA. Point #6 in MSE's article on Lifetime ISAs also says this is allowed. (Apparently as a new user I'm not allowed to post links.)

Am I misunderstanding this "multiple providers in the same tax year" restriction? Is it actually something like you can't open two products with two different providers in the same year?

I think I'm just going to take @masonic's advice and withdraw £4k from Nationwide and pay it into Skipton and see what happens.


Edit: Just tried to withdraw from Nationwide ISA to flex current account using online banking, and it's giving this warning:
I'm guessing this warning is either outdated or not applicable to my situation?

You can safely ignore them saying you "can't invest with more than one provider in the same tax year" this is only true for ISAs of the same type. You can open up to 4 ISAs of different types (cash, S&S, IF, Lifetime), each with a different provider.

As to the warning message, looks like that's outdated, although it is true if you don't pay it back into an ISA by the end of the same tax year.

Reed_Richards

GeorgeEade wrote: »

I think I'm just going to take @masonic's advice and withdraw £4k from Nationwide and pay it into Skipton and see what happens.

Masonic has convinced me that he/she is correct but as a general rule if you do make an error with your ISA investments (one that breaks the rules) I think it is likely that you won't be told about this until after the end of the tax year in which you made that investment.