Halifax Investment ISA (ISA Investor account) - Just close it or transfer out?

HighContrast

Hi all,

Semi urgent advice needed here please, I'm doing a financial audit for my mum atm. I had no idea she took out a investment ISA in 2007,  it's the type where you pay certain amount each month (approx £15 per month) and they allocate to four different investment funds for you, surprisingly some were at the higher risk side.
it was actually doing ok up until recently! Obviously with the market turmoil it's lost value. i.e. currently worth approx £10,900, was over £12,00 not long ago.

So looking to either:
1) Close it completetely (cash out)
2) Transfer it out  to another ISA (or exisiting ISA that she has from a previous year*)

But obviously ISA savings rates aren't great  atm. What are peoples thoughts aabout what to do here?

I just wonder  if it's worth closing immediately (i.e. cashing in) and losing the taxable protected bit of it as markets look like their heading downm therfore taking this ISA value down.

Also probably need to this sooner rather than later if the markets head down again as i think they will. The problem is a transfer out to another ISA will take 10 working days plus however long the "pulling" ISA company takes.

*She has two older tax year ISA's with santander which I'm guessing she could "pull" this haliax one into one of

**She has not opened any ISAs (cash or stocks & share) this financial year.

bowlhead99

HighContrast said:

I just wonder  if it's worth closing immediately (i.e. cashing in) and losing the taxable protected bit of it as markets look like their heading downm therfore taking this ISA value down.

Also probably need to this sooner rather than later if the markets head down again as i think they will. 

You can't know whether markets will go up or down next, though over the long term they tend to grow. The investments made in 2007 would be expected to be worth a lot more by 2020. As you can see they are, if she was only putting in 15 a month (rather than per week) for 13 years (£2-3k total) and now it's worth £10k+. But perhaps she was not contributing for all that time and made much bigger investments at the start, so a large gain would be expected, because most of the money was 'at work' for longer.  Anyway the point is, while you would expect investments to grow over time, they won't grow every day or week or month, and some years they will fall. You can imagine that they will be worth more in 2020 than 2017, and more in 2030 than 2020, but not specifically know whether they will be worth more or less at the end of August or September 2020 than February 2020 or July 2020. 

If doing a transfer to Santander, the transferring ISA manager will sell the funds and get cash, and give the cash to Santander. As soon as they process the 'sell' bit, her money is no longer on market risk, even if it takes a while longer to actually get the money over to Santander. So might not be as long as two weeks. But the markets could go up a few percent or down a few percent in the time it takes them to sell the assets, because a percent or two up or down each day is not unusual at the moment. 

You are the one doing the financial audit for your mum and seeing whether holding financial investments for the long term is a good thing for her to be doing or whether she should instead just have cash rainy day savings and watch them be eroded by inflation. We don't know her objectives, needs or goals because it's you doing the 'audit' and not us. So if you think it's not appropriate for her long term objectives to hold £10k in a mix of investment funds, and you believe markets will go down and not up, then I suppose you should sell and get her the cash, to add to her rainy day savings. 

If that is what you've decided then, so be it. If it is urgent that she does not take a few days more investment risk (having been taking investment risk for 13 years straight, and done completely fine with it) then yes she can just cash out and move the money to a bank account. If she hasn't used any of this years ISA allowance, and your plans following the rest of your 'audit' don't involve her making any more ISA subscriptions this tax year, then it is not really an issue if she takes this £10-11k out of an old ISA herself and then has to use up £10-11k of 2020/21 ISA allowance to get it back into an ISA.

Although, you mention she was putting £15 a month into this ISA, so perhaps she has used up 15x April, May, June, July, being £60 of the £20k limit.  That wouldn't be a practical problem if trying to fit £11k into a 2020/21 cash ISA, but it would stop her opening another S&S ISA with the cash proceeds because you can't contribute to two S&S ISAs in the same tax year without doing an official transfer to get the old contributions out of the first one.

Whether she needs to use a cash ISA to get the protection from being taxed on her interest is something that only you know. Generally, cash ISAs are not currently paying as much as non-ISA cash accounts or premium bonds (e.g. NS&I Income Bonds are over 1.1% and premium bonds likely to give about 1.2%) and so it can be better to get a higher rate of interest and just pay whatever tax is due (if any), than getting a lower tax free rate in an ISA. And her personal circumstances might mean she has no tax to pay on interest income anyway, depending on her allowances and tax bracket. 

As we are only talking £11k and not £111k, it doesn't seem like it would be difficult to fit the money back into a future year's ISA allowance if you found her circumstances (or the competitiveness of savings accounts or investment prices) were different in the future.  So probably fine to just take the cash and move it into a savings account, if investing the money has stopped being appropriate for her needs.

If you have a change of heart and think that investing some or all of that money could be appropriate for her after all, you'll probably find that there are better investment ISAs available these days than what was offered 13 years ago (lower annual management fees or wider investment choice or both) and so giving up on the current ISA is not necessarily a bad move.  The S&S ISA from Halifax Sharedealing for example (it's a separate product from the Investment ISA) is pretty competitively priced for making a £10k investment and has thousands of funds to choose from, and there are many other rival platforms with similar products. Unlike cash deposits, investing is definitely better done in an ISA than outside one, because it saves keeping all the records for tax.

dunstonh

surprisingly some were at the higher risk side.

When you build a portfolio, you will have funds above or below the risk profile. It is how they average out that matters.

it was actually doing ok up until recently! 

Whats changed?    Yes, the values would have gone down in Feb-March but most people are back up again and where they were around January time.  Some risk levels are higher than they were at their highest pre CV level.

Markets are doing what markets always do.  CV is nothing unusual in terms of market activity.  A negative event causing volatility.  The events that cause volatility vary each time but they are pretty regular in occurrence.

HighContrast

Huge thank you @bowlhead99 for your extremely comprehensive and well thought out post, very much appreciated.

I see what you mean about the longer term aspect of this particular investment, and that maybe i need to clarify a little more her objectives. 

I've just found she put in £2k initially, was in fact paying £75pm for a while (not sure how long) and then reduced this to £15pm.
Whilst no expert (nor I), I think my mum is worried about the state of the markets mainly due to covid and mores specifically the chance of another lockdown, but also the £15 pm deduction, she has (just now) specifically said she would like to get out of the Halifax Investor ISA but that i should do what i feel is best (oh the pressure of being the child huh). But I too feel a little nervous about the markets hence why I am also erring on closing/transferring out.

If doing a transfer to Santander, the transferring ISA manager will sell the funds and get cash, and give the cash to Santander. As soon as they process the 'sell' bit, her money is no longer on market risk,

Sorry does this mean for example, if my mum went to santander tomorrow (Friday) to do a transfer in, that would be the transfer in value? I.e. the Friday value? 

 If she hasn't used any of this years ISA allowance, and your plans following the rest of your 'audit' don't involve her making any more ISA subscriptions this tax year, then it is not really an issue if she takes this £10-11k out of an old ISA herself and then has to use up £10-11k of 2020/21 ISA allowance to get it back into an ISA.  Although, you mention she was putting £15 a month into this ISA, so perhaps she has used up 15x April, May, June, July, being £60 of the £20k limit.  That wouldn't be a practical problem if trying to fit £11k into a 2020/21 cash ISA, but it would stop her opening another S&S ISA with the cash proceeds because you can't contribute to two S&S ISAs in the same tax year without doing an official transfer to get the old contributions out of the first one.

Are you saying that I could cash out the Halifax i.e. they put the cash into a current account and it becomes normal cash (not ISA protected) and then seperately at another time open another (CASH) ISA and bung that money into there?
But you're saying it would not be possible to open another Stocks and shares ISA if she has made the £15 contributions this tax year?

Btw - I forgot to point out she became retired last year in May. Also, a small factor perhaps, but sadly due to the housing market, she is likely to become bank of mum & dad to me at some point too.

bowlhead99

HighContrast said:

If doing a transfer to Santander, the transferring ISA manager will sell the funds and get cash, and give the cash to Santander. As soon as they process the 'sell' bit, her money is no longer on market risk,

Sorry does this mean for example, if my mum went to santander tomorrow (Friday) to do a transfer in, that would be the transfer in value? I.e. the Friday value?

No, she will get the value whenever Halifax sell the investments.  I was just meaning that the way the transfer happens:
- Your mum tells Santander she wants to transfer from Halifax's product
- Santander tell Halifax
- Halifax place an order to sell the investments  and the investments are sold
- Halifax wait a few days for the cash sale proceeds to clear
- Halifax send the cash to Santander
- Santander make it available to your mum within her ISA.
So even if the whole process takes 2 weeks or longer, the money is not actually at risk of going up or down in value with market movements once the third stage (selling the investments) has happened.  She will get the value of whatever the funds are worth when that happens, even the last three stages take a bit of time.

Are you saying that I could cash out the Halifax i.e. they put the cash into a current account and it becomes normal cash (not ISA protected) and then seperately at another time open another (CASH) ISA and bung that money into there?

Yes, instead of doing a transfer process to keep it within the ISA protection without using any more current year (2020/21 tax year) subscription allowance, she could just tell Halifax to sell the funds and give her the money, and then at some point later subscribe the money from her current account into a different cash ISA (e.g. Santander or other). In doing that contribution to another ISA with money from her current account (rather than transfer directly from one ISA to another) she would use up some of her current year subscription allowance, but not too much of a worry because she has loads of unused subscription allowance for 2020/21.

But you're saying it would not be possible to open another Stocks and shares ISA if she has made the £15 contributions this tax year?

You are only supposed to contribute to one S&S ISA in a year unless you transfer out of the first one so that it's treated as if the first one never happened. 

If you don't bother with the transfer process and simply take the money out to your current account, it will be reported to HMRC that Halifax received the contributions.   What you want to avoid is both Halifax saying to HMRC that they received S&S ISA contributions *and* some other S&S ISA manager saying they received ISA contributions, because you are only supposed to put new S&S ISA money in one place or another unless you close and transfer out of the first one.

If she transfers from Halifax to Santander, when the ISA managers do their tax reporting the £15pm will be reported to HMRC as being part of Santander's  cash ISA, as if it were not subscribed to Halifax at all. So in that scenario it would not be a problem to later decide to make a contribution to a different S&S ISA manager's product later this tax year.

Albermarle

 i.e. currently worth approx £10,900, was over £12,00 not long ago.

On a long term S&S investment , a 10% drop is a regular occurrence and will have happened before during the life of the investments . Also are you using the latest valuation ( on line ?) or have you a paper valuation that is maybe a few weeks out of date as is often the case?

Whilst no expert (nor I), I think my mum is worried about the state of the markets

You ( and your Mum ) are actually saying that the global financial markets and professionals of London , New York etc turning over trillions of dollars a day  have misjudged the current prices of shares and that you think they should be lower. In reality you , or I , or anybody else has no idea whether the markets will go up or down in the short term. All we know is that historically long term investing in stock markets has proved to have good results ( so far ) .

Normally the advice in these situations is just to sit tight but it is a personal decision.