Does transferring ISA also transfer allowance?

Victorwelldue

Right so here is what I'm about to do:

1. Top up existing Coventry flexible ISA to £75K
2. Open new VM flexible ISA account
3. Use VM ISA transfer service to transfer Coventry ISA to VM ISA (£75K)

Does that sound right for retaining the ISA allowance I have built up?

Band7

Victorwelldue said:

Right so here is what I'm about to do:

1. Top up existing Coventry flexible ISA to £75K
2. Open new VM flexible ISA account
3. Use VM ISA transfer service to transfer Coventry ISA to VM ISA (£75K)

Does that sound right for retaining the ISA allowance I have built up?

Sounds about right, yes

Johnjdc

Victorwelldue said:

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.

Looks like you're correct. How strange. I took "replace the money in the same tax year" to mean you could only play around with that year's allowance, not that you could essentially put yourself in a position where your annual contribution was a negative number and therefore your "remaining allowance" was higher than the maximum...