Transferring in a Lifetime ISA.

JustAnotherSaver

Im sure I remember reading something that would mean a transfer eats in to your yearly allowance although can’t remember if that’s for LISAs, HTB ISAs or both. 

Freshly opened Lifetime ISA with £0 in. 
Have Lifetime ISA with different provider that contains money from a few tax years ago. Say £1000 for easy maths. 

Can you put out the full £4000 in the new LISA and also transfer in the old LISA with size of £1000? 
Or, as I have a feeling is the case, can you only deposit £3000 in to the new LISA if you’re going to transfer in the old LISA of £1000?

thanks. 

Alexland

A LISA to LISA transfer will not use any of your LISA or ISA annual contribution allowance. We have done this twice, Nutmeg > HL > AJ Bell when that sequence was possible using full LISA allowance each year with no issue.

An other ISA to LISA transfer will use your LISA but none of your ISA annual contribution allowance.

A LISA to other ISA transfer not use any of your LISA or ISA annual contribution allowance but will incur the early withdrawal penalty if under 60 which everyone is unless they are rapidly ageing by picking the wrong holy grail which is a loophole to get access to the money faster.

Roux

Following on from the discussion above..
I have received some inheritance recently and am trying to work out what to do with it.  I do not own a house and am not looking to buy one in the next year.  I currently have a HTB ISA with £8k in as well as an older cash ISA.  I have opened a LISA and am hoping to transfer in 4k this financial year and then another 4k next financial year.  Why does a transfer from an HTB ISA to LISA contribute towards the annual contribution?  
If you transfer from cash to cash ISA it doesn't contribute to your annual contribution.  If I stayed with the HTB ISA I would be able to pay in next year's allowance but I won't be able to do that with the new LISA as the transfer will have used up my allowance so I'm going to effectively lose a year's worth of contribution.
However, I can't pay into my cash ISA in the same financial year as my current HTB ISA so moving to a LISA allows me to pay into my older cash ISA plus I get the bigger gov contribution from the LISA.
Does that all make sense?  Am I doing the right thing?
Thanks for any help

Alexland

Transferring any other ISA (inc HTB) into a LISA uses up the 4k LISA allowance. Why? Those are the rules to throttle how much the government will payout in bonuses. So the total direct LISA contributions plus partial HTB ISA transfer can be up to 4k per tax year 

As you say a HTB ISA is a type of Cash ISA and you can only contribute into one Cash ISA each tax year. 

If you want to have more in Cash ISAs then some providers offer Split Cash ISAs where their HTB ISA and Cash ISA contributions are reported as one ISA.

Another option is to add uninvested cash to a S&S ISA such as Vanguard or HL and then transfer it into a Cash ISA next tax year when it wouldn't count as a new contribution.

Roux

Interesting.  I had discounted S&S ISA as the advice seems to be don't invest if you're not planning on keeping your money in for over 5 years as it's too risky.  So you're suggesting I open a S&S ISA now, top that up to my annual limit (minus what I've put into my HTB ISA) and then after April transfer it to my existing cash ISA?  Presumably you can transfer between S&S ISA and cash ISA just like transferring between cash ISA and cash ISA?  There must also be a risk that I could lose money even if it's only in the S&S ISA for a few weeks?  Also why suggest Vanguard and HL?  Thanks for your help.  

Alexland

If you use a S&S ISA provider that doesn't automatically invest your money and keeps it in the cash balance and has no exit fees (such as Vanguard or HL) there is no risk as it's just FSCS protected cash in an ISA wrapper. It's even safer than a Cash ISA as S&S providers are required to segregate client assets.

An uninvested S&S ISA transfer is basically the same process as a Cash ISA transfer.

Also when calculating your S&S ISA contribution remember to deduct your contributions into both your HTB ISA and LISA as you would have probably made a LISA contribution to open the account.

Roux

Thanks.  I haven't added 'new' money into the LISA just the transfer from my HTB so would I just need to deduct what I've put into my HTB from any amount I put into a S&S ISA, up to my annual allowance?

Alexland

Sounds right then. Going forward it might be easier to just add new contributions directly into your LISA than deplete the HTB ISA by doing partial transfers as the HTB ISA probably has a better interest rate than your Cash ISA.

JustAnotherSaver

What would you advise to be the best course of action regards taking from HTB ISA and putting in to LISA?

Withdraw £4000 from the HTB ISA and then put in the LISA

or fill out a transfer form and have it transferred?

NOTE: I'm well aware that withdrawing from one ISA and adding in to another eats in to your ISA allowance. If it was all done within the same tax year then £4000 in to a HTB ISA, withdrawn and then added to a LISA would be considered £8000 subscribed ..... yet it makes absolutely zero difference for the purpose of my question as the individual will still not be anywhere near the subscription limit. They wont even be halfway.

I was wondering if withdrawing and then adding to the LISA would be quicker than a transfer?

eskbanker

I'd say that withdrawing and redepositing is almost definitely going to be quicker, and as we hurtle towards the end of the tax year, that could make all the difference - theoretically transfers of cash between ISAs should be completed within 15 working days but there are only 18 left and ISA providers will be at their busiest....