Understanding isas interaction (with long winded example)

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npsgen
npsgen Posts: 5 Forumite
in ISAs & tax-free savings
Hi All, I have a bit of a strange plan but I am getting so confused with ISA laws that I really just don’t know if its legal or even if the system can work the way I want it too. This may be a long one so I’ll try to break it down into parts. For simplicity ill just say that no interest is gained on any balance in these questions:

1. Can I open an isa and only pay into it via an isa transfer? Will this count as any of my isa allowance?

2. I have a cash ISA account (opened in 2015 or so) that has £10k in it. I have heard that you can transfer money between ISAs without it counting towards your yearly ISA allowance (please verify if im wrong?)

If I opened a LISA account, it has a 4k transfer limit. Let’s say I plan to have the LISA for a minimum of 3 years. Can I do a partial transfer from the original ISA to the LISA each year without it counting towards my isa allowance? The idea would be to transfer 4k in year 1 and 2 and then 2k in the last year, then close the old account. The key part is the ability to do a partial transfer that doesn’t count for my allowance; this is important because…

3. I have a help to buy isa (H2B from now on) that was opened May 2018. I have been paying into that account this year. For simplicity, lets say that by the end of this tax year, I will have £2k exactly in that account. If I open the LISA in May 2019 via a isa transfer from my old ISA, can I continue to pay into the H2B for the remainder of the year?

Below is a summary of my ideal situation from May 2019 onwards (sorry i would embed a image of table but the site wont let me):

May 2019
Accounts Balance at start of year Balance change Balance at end of year
Old isa 10,000
4,000 transferred out 6,000
LISA (just opened) 4,000 transferred in 4,000
H2B 2,000 200 a month (2,400) 4,400
May 2020
Old isa 6,000 4,000 transferred out 2,000
LISA 4,000 4,000 transferred in 8,000
H2B 4,400 200 a month (2,400) 6,800
May 2021
Old isa 2,000 2,000 transferred out 0 – closed account
LISA 8,000 2,000 transferred in 10,000
H2B 6,800 200 a month (2,400) 9,200


*Please no alternative account type recommendations (investment isas etc.)at this time. I know you are coming from a good place but treat my ‘plan’ as more a proof of concept model that I’m trying to test if it’s legally possible.

** I know you can’t claim a H2B and a LISA at same time when buying a house.

Comments

  • Paul_DNAP
    Paul_DNAP Posts: 751 Forumite
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    1. Yes you can open a new ISA with only a transfer. No, it won't count towards your yearly allowance as you are not putting new money into the ISA wrapper.


    2. Yes, ISA transfers do not count towards your yearly allowance as you are not putting new money into the ISA wrapper.


    3. I am really not sure. I'd say probably.
    (Although I could be wrong, I often am.)
  • npsgen
    npsgen Posts: 5 Forumite
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    Hi Paul,

    Thanks for reading the lengthy post and giving your answer promptly!
    Paul_DNAP wrote: »
    1. Yes you can open a new ISA with only a transfer. No, it won't count towards your yearly allowance as you are not putting new money into the ISA wrapper.


    2. Yes, ISA transfers do not count towards your yearly allowance as you are not putting new money into the ISA wrapper.


    3. I am really not sure. I'd say probably.
  • soulsaver
    soulsaver Posts: 5,969 Forumite
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    edited 11 September 2018 at 4:29PM
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    You can transfer all or part of your existing ISA funds to a new ISA provider.

    It isn't a new ISA - a transfer doesn't open a new ISA.

    If that transfer includes any money contributed in the current tax year (ie from this ty's allowance) ALL current tax years contribution must be transferred to the new provider.
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  • npsgen
    npsgen Posts: 5 Forumite
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    Thanks for the response soulsaver! small follow up question
    soulsaver wrote: »
    You can transfer all or part of your existing ISA funds to a new ISA provider.

    It isn't a new ISA - a transfer doesn't open a new ISA.

    Do I need to open the LISA with an initial cash balance? Have you ever heard of opening an LISA with £0 balance and only transferring in?
    soulsaver wrote: »
    If that transfer includes any money contributed in this tax year (ie from this ty's allowance) ALL this tax years contribution must be transferred to the new provider.

    So considering i want to start the transfers in the next tax year, I cannot pay into the old ISA at all when transferring out of it. Then this will allow me to only transfer partial amounts rather than having to move the full balance? If I have this correct, then i can satisfy this condition with the 'plan'.
  • soulsaver
    soulsaver Posts: 5,969 Forumite
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    edited 11 September 2018 at 4:29PM
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    Sorry I know nothing about LISA or LISA rules.. other than I'm above the qualifying age for one..

    Does this help?
    https://www.gov.uk/lifetime-isa

    PS I've edited my previous post slightly so it's a little different to your quote now - not materially different, but less fixed in time.. :)
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  • masonic
    masonic Posts: 23,275 Forumite
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    npsgen wrote: »
    Do I need to open the LISA with an initial cash balance? Have you ever heard of opening an LISA with £0 balance and only transferring in?
    Yes you can open a LISA and fund exclusively with an ISA transfer.
    So considering i want to start the transfers in the next tax year, I cannot pay into the old ISA at all when transferring out of it. Then this will allow me to only transfer partial amounts rather than having to move the full balance? If I have this correct, then i can satisfy this condition with the 'plan'.
    You can specify that current year money is not included in a partial transfer, so there isn't really a requirement not to pay into it.

    But you can't pay into a HTB ISA in the same tax year you pay into your 'old' cash ISA. Unless both happen to be held with a split-ISA provider such as Nationwide.
  • Paul_DNAP
    Paul_DNAP Posts: 751 Forumite
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    npsgen wrote: »
    Do I need to open the LISA with an initial cash balance? Have you ever heard of opening an LISA with £0 balance and only transferring in?


    I am not sure they'd let you open it with absolutely zero balance, it is more likely that you will have to provide the transfer-in details as part of the account opening paperwork so that the transfer counts as your initial deposit.
    (Although I could be wrong, I often am.)
  • Oasis1
    Oasis1 Posts: 712 Forumite
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    npsgen wrote: »
    Do I need to open the LISA with an initial cash balance? Have you ever heard of opening an LISA with £0 balance and only transferring in?


    I believe there's only one provider that does cash LISAs for anyone and that's Skipton, which requires a minimum of £1 to open.


    See: https://www.moneysavingexpert.com/savings/lifetime-ISAs/#skipton
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