Confusion on ISA allowance

DLea3

I have a cash ISA with Nat west which I pay regular amounts into. I was offered another fixed rate isa with them at a better rate so opened this too in May &  put £10k in there. The bank allowed me to do this but then closed the account a month later. When I asked why they said it was because I can only pay into one cash isa per year. And as I’ve already put around £2000 into my original one, HMRC rules won’t allow a new one to be opened. Is this correct? And if so does this mean I can’t pay any money into another cash isa, only the one I already have with Nat west ( which is a rubbish rate!) 
i have asked the bank why they allowed me to open it in the first place but havnt got a suitable response. I also asked if I could keep the new one and transfer my allowance into that but was told no. 

I presume this means I can’t try to open another ISA this year?

boingy

You can only pay into one cash ISA in a year and you have already started to pay into the NatWest one so your only option is to transfer it if you want a better rate. You can open a new cash ISA at any bank and transfer your existing NatWest one into it. The transfer is done for you by the new bank. NatWest don't have a say in it.

droopsnoot

As for why they allowed it, as I understand it the bank has no way of checking whether you have another "live" ISA at the point that you open the new one, especially when it's held in a different bank. I believe there is some sort of checking done after the opening, this takes an amount of time to complete, which I expect is why it was closed after a month. The other way would be to make you wait a month when you try to open the new one, while the check is done.

Doctor_Who

If you want to use your remaining ISA allowance (£~18K) the best option is probably to add the money to your exiting NatWest ISA and then arrange a full transfer to another ISA provider offering a better rate (you must transfer all of this year's ISA subscription together, past years can be partially transferred).

refluxer

What type of Nat West cash ISA is it ? If it's easy access, then you should be free to transfer to another provider without paying a penalty.

You can normally only pay new subscriptions into one cash ISA during the current tax year but there are some providers who allow you to spread your allowance over multiple different cash ISAs (eg. you could open and pay new subscriptions into both an easy access and a fixed rate cash ISA with the same bank or building society).

These providers include Zopa (with their 'Smart ISA') and Paragon (with their 'ISA Wallet'). Nationwide also offer this with their 'Portfolio ISA' but their current range of different cash ISAs is very limited and rates are relatively poor.

NB. Unfortunately, Zopa don't currently allow transfers-in so you wouldn't be able to use them this time.

wiseonesomeofthetime

I think the issue here, which has caused the confusion for the OP, is that NatWest will have known that their customer already holds a Cash ISA when they sent out the offer for a Fixed Cash ISA, hence why OP thought they could open one.

However, it is likely that that offer was a generic promotional email to all NatWest customers, so, of course, it is not until the recipient actually then applies for that product that the flag of ineligibility is triggered.

eskbanker

DLea3 said:

i have asked the bank why they allowed me to open it in the first place...

Because as part of the application process you will have formally declared that you haven't paid, and won't pay, into any other cash ISA during this tax year?

DLea3

Thanks for these comments. Nat west have replied to me saying I can transfer to the higher rate one ( I think as their wording isn’t clear!) so am just clarifying that with them. 

phillw

Doctor_Who said:

If you want to use your remaining ISA allowance (£~18K) the best option is probably to add the money to your exiting NatWest ISA and then arrange a full transfer to another ISA provider offering a better rate (you must transfer all of this year's ISA subscription together, past years can be partially transferred).

Does the original ISA close when you transfer it?
Or can you transfer and then pay more in and transfer again?

Doctor_Who

Does the original ISA close when you transfer it?

If an ISA is opened, subscribed to and then transferred in the same tax year then the whole subscription has to be transferred and the original ISA will be closed. If it is an 'old' ISA from a previous tax year a partial transfer-out will leave the 'old' ISA open.

Or can you transfer and then pay more in and transfer again?

If the partial transfer-out (if allowed by the T&Cs) is from an 'old' ISA and it still accepts new subscriptions, then yes, but you are then only allowed to subscribe to this 'old' ISA in the current tax year (unless you transfer the current year's subscription to a new ISA). You can then do more partial transfers-out if you want (and if allowed by the T&Cs). Alternatively, don't subscribe to the 'old' ISA and put this year's subscription in a new ISA.