Transferring LISA to Cash / Stocks ISA

BilboBarr

Hey Folks,

I have a question on transferring a Lifetime ISA - I have tried to search through the forums but didn't find a match. Please accept my apologies if there is advice out there, but I didn't find it.

Long story short I have been paying the full 4k allowance into a LISA for 3 years, so 12k paid 3k bonus plus a bit of interest.  It has since become clear that I will not be able to use the bonus  to buy a house and if I look at leaving it for the pension benefit it's locked down till 60 and if I wanted to go that route I'd be better off paying more into a pension and claiming the 40% relief (or salary sacrifice).

So - since the withdrawal penalty is currently 20% I wanted to transfer my LISA into another ISA (Stocks and shares or Cash ISA )

I asked my new provider to do the transfer on 8th Feb, my current LISA Provider  (Newcastle)  replied via a letter on 18th March saying that it was not possible to transfer from a LISA to anything other than another LISA.

The government LISA page: (Oh I am not allowed links!)  gov.... Lifetime-isa
States at the bottom of the page that it is possible (oddly underneath "Saving for later life")

Here's the relevant text:

         Saving for later life

         You can take your savings out of a Lifetime ISA when you’re 60 or over.

         You’ll pay a 20% charge if you withdraw money or transfer the Lifetime ISA to another type of ISA before 60.

So - It is possible - but it will be subject to the withdrawl fee - which is just fine that's what I want.

I have queried with Newcastle and they again stated it was not possible and the only way to do this is to withdraw and then pay in - losing the 20% AND the 12k of ISA allowance.

Something here seems off - anyone had any success with this kind of transfer (I.e. ditching a Lisa and transferring to a Cash / Stocks ISA?).
Any advice appreciated - of course I'm now up against it on time even to do the withdrawal if it comes to it!
Many thanks,
Will

Alexland

You are correct if you are willing to pay the withdrawal charge it is possible to transfer a LISA to another type of ISA however you would need to be careful that you don't end the tax year having made contributions into two of the same type of ISA.

https://www.gov.uk/guidance/transfer-lifetime-isas-between-managers#transfer-lifetime-isas-to-other-types-of-isas

ISA providers are not allowed to tailor their product to remove your right to transfer-out any type of ISA (although they can be picky on what they agree to transfer-in). It seems your provider does not have a process for this transfer to a non-LISA but that shouldn't be your problem.

https://www.gov.uk/guidance/transfer-an-isa-if-youre-an-isa-manager

"Investors have the right to transfer their ISAs whenever they want and this right must be included in the manager’s ISA terms and conditions."

However for the sake of time it might be best to make a withdrawal request - do you tend to use your full ISA contribution allowance each tax year anyway?

UniqueNamesAreTricky

Much appreciated Alexland,
Ive been lucky enough, (or possibly unlucky given it came from a redundancy payout) to pay the remaining 16k allowance into a Stocks Isa this year, and will use the 20k next year. So it does feel like they have denied the transfer just because they don’t know how to process it.

It’s also frustrating they already waited more than the 30 days to even respond.

Thanks for the extra ammo though, I will have another go!

underground99

It shouldn't be up to the current provider to say where you can send it, it would be up to the receiving scheme to decide if they want to accept it.  Perhaps Newcastle themselves don't want to take money into their own normal cash ISA from their LISA and assume others don't want to either.

Given the time constraints (before the withdrawal penalty goes up up 25% after the end of this tax year), frustrating though it is, you could probably just take the 'path of least resistance' and get the money back in cash to reinvest in whatever you like (cash ISA, S&S ISA, pension) 

Does it really matter if you 'lose' the £12k of ISA allowance? The allowance is £20k per year so you may still have some of your ISA allowance left for 2020/21 ; and if not you will get another £20k of ISA allowance in a couple of weeks from now for 21/22, would you otherwise have already been able to max that out if you hadn't got the £12k back in your hand this week?

Edit - ok I see your answer above:
Still, you probably have some spare pension allowance for 2020/21 year, and again will get some more for next year 21/22? For the portion of the £12k that you dump into a pension, you would not need any ISA allowance because you'd be using pension allowance, so it doesn't matter if you've 'lost' a bit of ISA allowance...

UniqueNamesAreTricky

Ahh - gf’s ipad used to post! Oops!

Alexland

UniqueNamesAreTricky said:

Thanks for the extra ammo though, I will have another go!

It might also be worth mentioning (nicely, as it's not usually the person on the phone's mistake) that if they fail to transfer this in time you will be raising a formal complaint seeking compensation for at least the difference in penalty that would apply from their delays and failure to have an appropriate process for this allowed transfer out.

BilboBarr

Hi,
So - quick update - Newcastle continue to absolutely refuse to process the transfer stating that it is not possible to transfer from a LISA to another form of ISA.
Below is where I have pulled the info - with some help from the folks on these boards.
So it seems it is possible - but Newcastle Building Society don't know how to do it.  I realise that it is now too late to process the transfer before the charge increases to 25% so I am going to lose the 12K worth of ISA allowance I had banked by withdrawing the cash.
Not the end of the world I admit - but I am using my full allowance of 20k and this is frustrating - but what if I had tried this in 10 years? I'd have 40k of ISA allowance tied up and they are refusing to allow me to transfer it - then it really would be a much bigger issue.
If anyone has had success transferring a LISA to another ISA with Newcastle and knows a trigger word (or even a person!) that can help - please do let me know.
Cheers
Will

Here's the relevant sections from the Gov guidance on Lisa transfers:
From the main Lifetime ISA Page:
1: You’ll pay a 20% charge if you withdraw money or transfer the Lifetime ISA to another type of ISA before 60.
From the Guidance page Lifetime ISAs for ISA Managers:
1. Find out about transferring Lifetime ISAs to a new Lifetime ISA manager or another type of ISA.
2. Transfer Lifetime ISAs to other types of ISAs

• You can also transfer Lifetime ISAs to other types of ISAs. These transfers are treated as a withdrawal from the Lifetime ISA and are subject to a 25% withdrawal charge unless:

Alexland

BilboBarr said:

So - quick update - Newcastle continue to absolutely refuse to process the transfer stating that it is not possible to transfer from a LISA to another form of ISA.

Nothing is possible unless they try. Even if you withdraw I suggest you follow it up with a formal complaint that they haven't implemented the ISA rules correctly.

BilboBarr

Yep Thanks Alexland - I have given up and will process the withdrawal but complaint and most likely ombudsman process to follow - it won't help me but could help the next person