Close Help to Buy ISA, then open Cash ISA same year

jayre

In the Help to Buy info, Martin, when answering this previously asked question, states that it is a little known fact that if you completely close a HTB ISA you can then open a new Cash ISA in the same financial year. Can someone please direct me to the wording where this fact is officially stated regarding the operation of these accounts as Virgin Money tell me this is incorrect. Relying on the information, I fully closed my HTB ISA (held with Virgin Money) by cash withdrawal and after waiting to ensure it was closed then opened a one year fixed Cash ISA, again with Virgin Money and they have, two weeks later, returned my opening deposit. When questioning their action I was told it should have been done by transfer but if this was the case, the HTB ISA could not have been fully closed prior to opening the new account. As it stands, I have neither account and Virgin Money advised me that I cannot open another until the next financial year, has anyone else come across this problem?

masonic

See https://www.gov.uk/guidance/close-void-or-repair-an-isa-if-youre-an-isa-manager#repair-void

‘Investor error’ ISA self transfer

ISA investors must transfer their ISAs through the you. Investors cannot transfer an ISA by closing it and opening a new ISA with the new ISA manager (commonly known as ‘self-transfer’), even if the investor is moving from one ISA product to another with the same manager.

Self-transfer is not available for Lifetime ISAs.

However, where:

• the investor subscribes to 2 cash ISAs, in the same tax year
• subscriptions to the first ISA subscribed to were valid
• all of the current year subscriptions to the first ISA subscribed to were withdrawn (whether or not that ISA was closed) before subscriptions to the second ISA were made

The subscriptions to the second ISA may be valid, subject to the guidance below.

The first cash ISA to be self-transferred in a tax year is valid, and does not need to be repaired.

The second (and any subsequent) self-transferred cash ISA is not valid and is not eligible for repair.

This won't work where the second cash ISA is opened with the same ISA manager, because ISA managers must prevent "investor error" when they know about it, which Virgin has done. You can go ahead and open a cash ISA with a different provider and make use of this self-transfer clause.

Why didn't you just transfer your HTB ISA to the cash ISA by requesting the transfer is made by Virgin? There is no requirement to "fully close" the HTB ISA before opening the other cash ISA. The correct process for transferring an ISA is to first open the new ISA, then request that the new ISA provider transfers your existing ISA. You can open as many cash ISAs as you like, but you can only pay new money into one cash ISA per tax year. Once transferred, an ISA containing money from the current tax year can be topped up.

jayre

I am aware of the transfer procedure but did not request Virgin make a transfer because Martin's earlier answer was that the HTB ISA should be "fully closed" before a new account could be opened and I followed this; by doing a transfer, obviously both accounts would have to be open to action it - now I have neither account open..
From your reply, I take it there is no point in pursuing Virgin over this and I would need to open a new ISA elsewhere which, I presume will raise the same situation and I would need to pursue the "void or repair" scenario with the new provider. I am assuming that I could not now rely on the "investor error" rules as Virgin have already made me aware of the situation.
A change of circumstances meant that I could have gained from the tax protection benefit of a £20k ISA investment rather than the reduced HTB figure in this financial year - to no avail, so somewhat disappointed. I would be grateful for any further observations and would like to thank you for your info to date.  

masonic

jayre said:

I am aware of the transfer procedure but did not request Virgin make a transfer because Martin's earlier answer was that the HTB ISA should be "fully closed" before a new account could be opened and I followed this; by doing a transfer, obviously both accounts would have to be open to action it - now I have neither account open..

Here is the question and answer to which you refer:

https://www.moneysavingexpert.com/savings/help-to-buy-ISA/#accordion-content-230795357-8

I've used my Help to Buy ISA for a home. Can I now open a cash ISA this tax year or do I have to wait until next?

Yes, you can open a cash ISA once you've closed your Help to Buy ISA.
Normally you can only pay new money into one cash ISA per tax year (Help to Buy counts as a cash ISA), but a little-known exception to the rule is that you're allowed to pay into a second (but no more), provided you've fully closed the first, not just emptied it.
As you need to close the Help to Buy ISA fully to get the bonus to buy a home, you'd be free to open a new cash ISA this tax year.

The first point to note is that this doesn't apply to your situation because you had not used your HTB ISA for a home. You still held it. So you have misunderstood the answer and taken the wrong action on the basis of your misunderstanding (missing out on the opportunity to transfer your ISA in the normal manner, which is of course open to those who do not close their HTB ISA for a house purchase).

The second point to note is that the answer is almost correct. The last sentence should read "...you'd be free to open a new cash ISA this tax year with a different provider." Someone fully versed in the ISA rules would know this, and several frequent this forum, so it would have been better for you to have come here rather than relying on the response of an amateur like Martin Lewis

jayre said:

From your reply, I take it there is no point in pursuing Virgin over this and I would need to open a new ISA elsewhere which, I presume will raise the same situation and I would need to pursue the "void or repair" scenario with the new provider. I am assuming that I could not now rely on the "investor error" rules as Virgin have already made me aware of the situation.

There is no requirement for you to be unaware of the rules when you self-transfer an ISA. So this option is still open to you. Just pick a provider other than Virgin and you'll be fine.

jayre

Thanks for your clarification. I obviously placed the emphasis on the HTB ISA being fully closed rather that the reason it was fully closed i.e. used for its main purpose. I will, as you suggest, try again.