ISA transfer question

waterman10

I hear alot of people saying you should never withdraw your money from a cash ISA - you should transfer your funds so that they maintain their tax-free status.  I understand that makes sense if you have more than £20,000 in it, but if you have less than that, does it make any difference whether  you do a transfer or just withdraw your money from your cash ISA and open another cash ISA?

XzavierWalnut

You have a point. But if you have a very small amount in ISA's and not planning on building a large pot (maximum deposit from April 2027 will be £12K for under 65s), it's not really worth having an ISA,

t0rt0ise

waterman10 said:

I hear alot of people saying you should never withdraw your money from a cash ISA - you should transfer your funds so that they maintain their tax-free status.  I understand that makes sense if you have more than £20,000 in it, but if you have less than that, does it make any difference whether  you do a transfer or just withdraw your money from your cash ISA and open another cash ISA?

You can do that as long as you aren't then going over the £20,000 new money rule in that year. 

Barkin

XzavierWalnut said:

You have a point. But if you have a very small amount in ISA's and not planning on building a large pot (maximum deposit from April 2027 will be £12K for under 65s), it's not really worth having an ISA,

If you've (for example) £25k outside of ISA's the interest - assuming 4% - would see the total PSA used up.

Given that EA ISA's are currently paying pretty much the same as non-ISA EA accounts, it absolutely can be worth having small amounts, that might mean exceeding the PSA, in an ISA.

If you've no intention of increasing ISA contributions such that they'd go over the current annual allowance, you lose nothing by withdrawing it yourself and redepositing it elsewhere, and not bothering with the transfer process.

eskbanker

waterman10 said:

I hear alot of people saying you should never withdraw your money from a cash ISA - you should transfer your funds so that they maintain their tax-free status.  I understand that makes sense if you have more than £20,000 in it, but if you have less than that, does it make any difference whether  you do a transfer or just withdraw your money from your cash ISA and open another cash ISA?

One other point is that if the existing ISA is flexible then you can withdraw current year money from it and deposit into another ISA without it counting as new money, so the rules differ between flexible and non-flexible ISAs.

Newbie_John

eskbanker said:

waterman10 said:

I hear alot of people saying you should never withdraw your money from a cash ISA - you should transfer your funds so that they maintain their tax-free status.  I understand that makes sense if you have more than £20,000 in it, but if you have less than that, does it make any difference whether  you do a transfer or just withdraw your money from your cash ISA and open another cash ISA?

One other point is that if the existing ISA is flexible then you can withdraw current year money from it and deposit into another ISA without it counting as new money, so the rules differ between flexible and non-flexible ISAs.

That's not the case? If you have £20k in flexible ISA at X place when you withdraw it you cannot pay to another Z provider ISA, you can only pay it back to the original place.

eskbanker

Newbie_John said:

eskbanker said:

waterman10 said:

I hear alot of people saying you should never withdraw your money from a cash ISA - you should transfer your funds so that they maintain their tax-free status.  I understand that makes sense if you have more than £20,000 in it, but if you have less than that, does it make any difference whether  you do a transfer or just withdraw your money from your cash ISA and open another cash ISA?

One other point is that if the existing ISA is flexible then you can withdraw current year money from it and deposit into another ISA without it counting as new money, so the rules differ between flexible and non-flexible ISAs.

That's not the case? If you have £20k in flexible ISA at X place when you withdraw it you cannot pay to another Z provider ISA, you can only pay it back to the original place.

No, the rules changed last July so it's back to how they were pre April 2024, allowing current year money to be paid into other ISAs:

The withdrawal of previous year funds from a flexible ISA can only be replaced in the account from where the withdrawal was made and must be replaced in the same tax year.

The withdrawal of current year subscriptions from a flexible ISA automatically reduces the net subscription to that ISA meaning that additional subscriptions can be made to other ISAs (flexible or non-flexible) in the remainder of that tax year.

https://www.gov.uk/guidance/manage-isa-subscriptions-for-your-investors#flexible-isas