Transferring from matured ISA to Savings account

nkshaw23

Hi all - getting myself very confused on ISA's, allowances and transfers and hoping for some advice from people with more knowledge than me!

I have a Santander ISA that has just matured into a Cash ISA. I used my full allowance for 2019/20 tax year. I wanted to transfer this amount into a savings account (Vanquis 1 year fixed rate bond) which has a much higher interest rate, but I also want to transfer in the full allowance (£4,000) to my LISA this tax year aswell.

1) Are there any disadvantages to transferring out from the matured ISA into Vanquis? There is a warning from Santander when I try to transfer from the ISA into my Santander current account (to then transfer to Vanquis) which states 'Making this withdrawal means you will lose the tax-free status on the funds you withdraw.' - does this mean the tax free status on my interest? If so, I don't think this will be an issue as not earning enough interest to hit my PSA.

2) If I do this, can I still put the £4,000 into my LISA? Or will withdrawing from the ISA use up my 2020/21 allowance?

Thanks in advance,
Nathan

eskbanker

1. Yes, removing money from the ISA wrapper means that interest subsequently earned on that money is subject to income tax, but if that's all within your PSA then you shouldn't actually pay any.

2. Withdrawing doesn't affect your 2020/21 ISA allowance of £20K, so you can use £4K of this by paying into a LISA, leaving £16K available.  You could preserve your entire annual allowance if you wanted to, if your LISA allows transfers in, by transferring the £4K directly from your Santander cash ISA to the LISA.

colsten

Moving your money from the Santander ISA to Vanquis will not affect your 2020-21 ISA allowance in any way. The only actions that go against your ISA allowances are deposits you make into one or more ISAs.

If you deposit £4,000 into a LISA in 2020-21, your remaining 2020-21 ISA allowance will be £16,000.

The interest you earn in Vanquis will be taxable income but if your total interest income is below your PSA, you won't have to actually pay any tax on it.

nkshaw23

Thanks for the speedy responses colsten and eskbanker - makes perfect sense now having it explained by people who know what they are talking about.