Does transferring ISA also transfer allowance? 11 December 2022 at 7:45PM in Savings & investments 13 replies 492 views

Victorwelldue

This is probably a daft question but just want to be sure: I have £10 in a Coventry flexible cash ISA but I can pay up to £75,000 into it before end of this tax year as I've filled up my allowance each year over last few years then moved cash out to better rate savings account straight away (I'll likely be using the allowance in near future for SS ISA once I've exhausted my pension AA & carry forward).

I want to open a Virgin Money flexible cash ISA with better rate. I assume that when I process the ISA transfer via VM that the allowance of £75,000 will also transfer to them? So once the transfer is complete I will see £10 in the VM ISA but it will show I can pay in up to £75,000 before end of tax year same as my Coventry ISA shows now - is that correct? 

Band7

Apparently you must replace the money in the same ISA you withdrew it from. https://www.moneysavingexpert.com/savings/flexible-isas/

Best to ask Virgin Money, in writing.

Olinda99

no it won't transfer you need to replace it before transferring.

Band7

This what Virgin say (i.e. no):

grumbler

Victorwelldue said:

I have £10 in a Coventry flexible cash ISA but I can pay up to £75,000 into it before end of this tax year as I've filled up my allowance each year over last few years then moved cash out to better rate savings account straight away

You did return it back at the end of each year, didn't you?

And the answer to your question is "The key rule is you must replace the money in the same ISA account you took it out from" - https://www.moneysavingexpert.com/savings/flexible-isas/

Victorwelldue

Thanks I didn't realise that. So does that mean if I didn't replace it in the original account first then I'd essentially lose that £75K allowance forever and would be starting from scratch at £20K per year again? Also if I do decide to replace in original account first does that mean I wouldnt be earning interest on £75K for the time it takes for transfer to complete?

Victorwelldue

grumbler said:

Victorwelldue said:

I have £10 in a Coventry flexible cash ISA but I can pay up to £75,000 into it before end of this tax year as I've filled up my allowance each year over last few years then moved cash out to better rate savings account straight away

You did return it back at the end of each year, didn't you?

Yes, just before end of last tax year my ISA balance showed as £50K then a few days later it showed £10 as I'd transferred to better rates elsewhere.

Johnjdc

Victorwelldue said:

Thanks I didn't realise that. So does that mean if I didn't replace it in the original account first then I'd essentially lose that £75K allowance forever and would be starting from scratch at £20K per year again? Also if I do decide to replace in original account first does that mean I wouldnt be earning interest on £75K for the time it takes for transfer to complete?

Yes, that is what it means. More specifically, you have already lost £55k of that allowance, as I understand the rules.

Victorwelldue

Johnjdc said:

Victorwelldue said:

Thanks I didn't realise that. So does that mean if I didn't replace it in the original account first then I'd essentially lose that £75K allowance forever and would be starting from scratch at £20K per year again? Also if I do decide to replace in original account first does that mean I wouldnt be earning interest on £75K for the time it takes for transfer to complete?

Yes, that is what it means. More specifically, you have already lost £55k of that allowance, as I understand the rules.

I don't think I've lost any allowance so far! I haven't opened new account yet and My Coventry ISA says in black & white I can pay in up to £75K before the end of this tax year. Its flexible and I have filled it up before end of each tax year for last few years as per MSE article below (this is exactly what I've been doing).

Play the system to max interest and keep ISA benefits

Taking this to its extreme, there's a nifty trick you could use to keep your money tax-free forever in an ISA while getting a higher interest rate for most of the year.

Let's say you have £50,000 in flexible ISAs, but other savings accounts pay higher interest that you want to take advantage of, and you don't want to lose your ability to keep £50,000 tax-free year after year as you can in a cash ISA (see Is the cash ISA worth it?). Plus remember the personal savings allowance means you can earn up to £1,000 in interest in non-ISA savings accounts each financial year tax-free.

Here's how:

1. At the start of the new tax year – so from 6 April – withdraw the ISA cash.
2. Put it in (several) high interest accounts (see our Top savings guide for the best deals).
3. Before 5 April the following year just put it back in the ISA to keep your tax protection.
   
4. Repeat the process again and again.
   

This means your money would be earning more interest for most of the year, whilst still keeping the long-term benefits of an ISA.

grumbler

Victorwelldue said:

grumbler said:

Victorwelldue said:

I have £10 in a Coventry flexible cash ISA but I can pay up to £75,000 into it before end of this tax year as I've filled up my allowance each year over last few years then moved cash out to better rate savings account straight away

You did return it back at the end of each year, didn't you?

Yes, just before end of last tax year my ISA balance showed as £50K then a few days later it showed £10 as I'd transferred to better rates elsewhere.

Was it 50 at the start of the current year? And if it was, why 75, not 50+20=70?

Victorwelldue

grumbler said:

Victorwelldue said:

grumbler said:

Victorwelldue said:

I have £10 in a Coventry flexible cash ISA but I can pay up to £75,000 into it before end of this tax year as I've filled up my allowance each year over last few years then moved cash out to better rate savings account straight away

You did return it back at the end of each year, didn't you?

Yes, just before end of last tax year my ISA balance showed as £50K then a few days later it showed £10 as I'd transferred to better rates elsewhere.

Was it 50 at the start of the current year? And if it was, why 75, not 50+20=70?

Typo. Meant £55K.