Old money/new money

Plus · 5 March 2018 at 12:21PM

In a S&S ISA, how is the difference between 'old money' and 'new money' tracked?
I pay in a certain amount of money, I do various buying and selling. The next year I do the same. My ISA now contains a mix of 'old' money from the past tax years and 'new' money from this tax year. If I want to transfer, what happens about the rules about transferring current years' contributions together?

If we take the macro view that I think HMRC does, they want to make sure in the end-of-year return that the total amount of money deposited in ISAs is £20K, and fresh deposits remain in no more than one ISA of each kind.

Does it therefore make sense for transfers to be fulfilled out of 'old' money first? In other words, if I pay in £8K last year and £9K this year, a transfer out of £10K must involve at least £2K of 'new' money, but a transfer of £7K can be achieved entirely from 'old' funds? So the first will mean further subscriptions must go to the account it transfers out to, while the second mean further subscriptions can continue in this account. What happens to growth in this situation (eg the £8K grew to £10K before the end of the tax year)?

Or is there more detailed tracking of how funds got allocated? For instance, which specific shares got bought in what years and what happens to the proceeds when they are sold. How, then, is cash allocated - some being sale of investments from past years, some being freshly-deposited cash?

Trying to get my head around when it is safe to transfer out cash in an account which has also been paid into this year...

Alexland · 5 March 2018 at 8:27PM

I don't think the platforms make any attempt to track if you are buying a share with old or new money but they just keep track of your contributions in the current tax year.

So for example if your ISA contained £30k of which £15k was contributed this year they wouldn't let you transfer £20k.

However its not that simple as the first £15k could have made a £5k gain and the second £15k could have made a £5k loss.

I agree it's messy but partial transfers probably don't happen that often with S&S ISAs as generally you would want to keep the money together for reduced trade costs and sometimes lower platform fees.

Alex

5aday · 5 March 2018 at 9:58PM

As -

Plus

- says, one is not allowed to contribute to more than one ISA of the same type in any one tax year.

However provided the correct ISA transfer forms are complete, (rather than the money just being withdrawn), previous year's (old) money can be transferred from one ISA account to a new one without this counting as a contribution and preventing money's being contributed to another account of the same type.

Hence the question as to whether given both old and new money in the same ISA account, a transfer out of that account is a transfer of old, or of new money.

Looking at ...

gov.uk/government/uploads/system/uploads/attachment_data/file/603261/ISA_Lifetime_ISA.pdf

...individual ISA providers report contributions and withdrawals to the HMRC (SSO) at the end of each year. The HMRC then decide on the basis of this "overview". Furthermore, the document above is written on a Last-in First-Out (LIFO) basis. Thus if any money is contributed during the year, any withdrawal is taken to include this money. Page 30 then applies, which says ....

"Where the investor transfers current year subscriptions from one type of ISA to another the subscriptions are treated as if they were made to the receiving ISA"

In consequence, any withdrawals from ISA accounts where new money has been contributed, together with any further new money can only be put into one of each type of ISA.

As a check, I could say that if this were not the case, it would be easy for anyone with "old" ISA funds to avoid the rule about not being able to contribute to two funds of the same type by simply passing the funds for the second ISA though the existing account.

What a good question. I hope my answer is right or if not that someone will correct it. Having managed to avoid the complexities of ISA's, unless I take one out now, I can see me suffering the complexities of Capital Gains tax -:(

Plus · 6 March 2018 at 12:39AM

5aday wrote: »

As a check, I could say that if this were not the case, it would be easy for anyone with "old" ISA funds to avoid the rule about not being able to contribute to two funds of the same type by simply passing the funds for the second ISA though the existing account.

As far as I know this is completely legit:

Open cash ISA in year 1
In year 2, pay money into new S&S ISA #1. Transfer from old cash ISA into different new S&S ISA #2. Pay new money into old cash ISA.
In years 3 to N, repeat.

If you do it in that order there's no problem with opening two new S&S ISAs, one with 'old money' and one with 'new money'. It is only if you do it in the other order (pay into old cash ISA and then transfer to S&S #2 - is the transfer old or new money?) that it's ambiguous.

I think in that circumstance the HMRC return would show new money paid into the cash ISA and S&S ISA #1, and as long as the total is not more than £20K then HMRC are happy. So maybe it just depends on whether I tick the 'old money' or 'new money' boxes on the transfer form?

Old money/new money

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