Can I close a cash ISA and open a new one in the same finiancial year

debsjw10

I had been paying an amount of £200 per month into a cash ISA for a number of years until July 2022..  In July 2022 I transferred all but a few pounds out of the ISA into a normal savings account because the interest on the ISA was ridiculously low.  Now that interest rates have gone up I am worried that next year the interest I receive on all of my savings will take me over the £1000 allowance. I am therefore looking at Cash ISAs again.   

Am I able to withdraw the (less than £5) balance from the existing Cash ISA and close it and then open a new cash ISA now?  I only paid £600 into the existing cash ISA in this financial year before my July 2022 withdrawal?

Any advice much appreciated.  

eskbanker

You can open a new cash ISA elsewhere and transfer the existing one into it (via the new provider's ISA transfer process), rather than simply closing it, which would result in all your current year money being kept together, as required.

Steve_xx

You can open a new ISA. But you must transfer the remaining £5 from the existing  ISA to the newly opened ISA. You said you have contributed £600 out of a possible 20k to your ISA in this tax year, and you said effectively that you have withdrawn £595 from this years contributions. This means that you should be able to contribute a further  £19,400 to your new ISA in the current tax year. Therefore the starting balance of your new ISA could be as much as £19,405, or a little bit more depending on when interest is added to the ISA you already have with the £5 in it.

You must not withdraw the £5 or close the existing ISA, or you'll lose the ISA status. Instead, you must open a new ISA and instruct the new ISA provider to  transfer-in the existing ISA. 

eskbanker

Technically it is possible for OP to withdraw the money in the first one and open and fund a second one, but transfer (by the new provider) is simpler and cleaner, as can be seen from the complexity of the explanation below!

https://www.gov.uk/guidance/close-void-or-repair-an-isa-if-youre-an-isa-manager#repair-void

‘Investor error’ ISA self transfer

ISA investors must transfer their ISAs through the you. Investors cannot transfer an ISA by closing it and opening a new ISA with the new ISA manager (commonly known as ‘self-transfer’), even if the investor is moving from one ISA product to another with the same manager.

Self-transfer is not available for Lifetime ISAs.

However, where:

• the investor subscribes to 2 cash ISAs, in the same tax year
• subscriptions to the first ISA subscribed to were valid
• all of the current year subscriptions to the first ISA subscribed to were withdrawn (whether or not that ISA was closed) before subscriptions to the second ISA were made

The subscriptions to the second ISA may be valid, subject to the guidance below.

The first cash ISA to be self-transferred in a tax year is valid, and does not need to be repaired.

The second (and any subsequent) self-transferred cash ISA is not valid and is not eligible for repair.

The first cash ISA may be closed and all the funds held in the ISA withdrawn (including any subscriptions for earlier years) or the first cash ISA may remain open and after the self-transfer will hold only subscriptions which were made in previous years. If the ISA remains open, no further subscriptions can be made to it in the tax year of the self-transfer.

See worked examples of repairs and voiding.