Whether you found a better deal or panic-opened an ISA on the eve of each end-of-tax-year deadline, it might be time to transfer.
The rules vary depending on what you’re switching and where you’re going, but there are five golden one that always apply.
The golden rules
- Transferring is easier than ever. There used to be restrictions on the kinds of switches you were able to make, but since July 2014 you have been free to switch between different kinds of ISAs – and back again – at any time.
- Whenever you transfer any kind of ISA, you mustn’t close it. If you do, the money comes out of the ISA wrapper, and you’ll lose those years’ ISA allowances forever. Instead, you need to contact the company you are thinking of moving to, and get them to arrange the move for you – so the money stays within the ISA regime.
- As a general rule, transferring an old ISA from a previous tax year won’t have any impact at all on your allowance for this year. It means you can switch an old ISA, and still contribute up to your annual limit this year too. You can also move an ISA from this tax year – but that will come out of this year’s allowance.
- You’ll need to check whether the ISA provider you want to switch to accepts money from other ISAs. Not all of them will, and some will only accept partial transfers, so check before you get stuck in.
- Before you move, you’ll also need to check whether there is a charge from your old provider for leaving (or a loss of interest on Cash ISAs). You are more likely to see charges on older ISAs, or on specific kinds – like fixed term Cash ISAs or Innovative Finance ISAs.
Transferring Cash ISAs between providers
If the interest rate paid on old Cash ISAs has fallen, you can shift your money – and it should all be done within 15 days. Before you do so, check if you will lose interest or face a charge for leaving, and calculate whether it’s worth paying the fee it in order to be free to switch to a better rate.
Transferring Stocks and Shares ISAs between providers
If you have invested through an investment platform, switching between funds is straightforward, because you can sell and buy shares and funds at any time within the ISA wrapper without worrying about tax.
If you have invested direct with a fund manager, there are two ways to switch. You can do a ‘cash transfer’, so your old provider sells your investments, and passes the money to your new provider, to be invested as you wish. The guideline is that this should take no more than 30 days and during that time you will not be invested. This could work for or against you, depending on how markets move while the transfer takes place.
Alternatively, if you are shifting between providers, but want to stay in the same funds, you can do what’s known as an ‘in specie’ transfer. This means you stay invested throughout the process; your investments are just handed over. This has the advantage that you’re not out of the market at all, but do check for any charges your old provider may impose, because sometimes moving ‘in specie’ costs more.
Transferring Cash ISA to Help to Buy ISA
If you want to open a Help to Buy ISA this tax year, but you already have a Cash ISA, you can’t hold both (unless your provider offers them both within a Cash ISA wrapper), so you’ll need to transfer. You should be able to move up to £1,200 (some providers have lower limits), and the rest will need to be put into a Stocks and Shares ISA.
Transferring Junior ISAs between providers
Despite the fact that you cannot withdraw money from a Junior ISA until the child reaches the age of 18, you can still switch Junior ISAs in exactly the same way as their adult equivalents.
Transferring Help to Buy ISA between providers
Help to Buy ISAs are a kind of Cash ISA, so you can move them in exactly the same way as a Cash ISA.
Transferring between Lifetime ISAs
The process is the same as switching between basic ISAs and should take no longer than 30 days.
Transferring Help to Buy to Lifetime ISA
Until April 2018 there are special rules for transferring, which mean you can switch everything that was in your Help to Buy ISA by April 2017 over to a LISA, without it coming out of your £4,000 annual LISA allowance. Any further contributions or growth in this tax year will need to come out of this year’s allowance, but you can top that up to £4,000 and get the 25% bonus on it all.
After the end of this tax year, you can still transfer up to £4,000 a year from a Help to Buy ISA into a LISA, but it will come out of the current year’s allowance.
Transferring from a Lifetime ISA to a Cash ISA or Stocks and Shares ISAs
This is possible, and works in the same way as transferring basic ISAs. However, when you transfer out of a Lifetime ISA and into another type before the age of 60, while you will keep the money in a tax-free environment, you will pay the 25% withdrawal fee.
Transferring from an Innovative Finance ISA
The rules allow you to move, but the way they work means that it may not always be straightforward. You’ll be able to transfer any money held as cash easily, but they have different rules regarding money that is on loan.
You may have to pay a fee to free up the cash and you may have to wait for the provider to sell the loan. If they cannot sell a particular loan, they may have to switch it into a separate account outside the ISA wrapper – so you lose tax savings on it. Check the approach your provider takes.
Transferring between Cash ISAs, Stocks and Shares ISAs, and Innovative Finance ISAs
The rules now let you switch between these ISAs, and plenty of people have been taking advantage. With the decline of interest rates on Cash ISAs, there have been more people transferring from Cash ISAs to Stocks and Shares ISAs in recent years. Our figures show that the number of switches from Cash ISAs to Stocks and Shares ISAs in the first ten months of 2017 were up 53% on the same period a year earlier.
Transferring a deceased spouse's ISA
On death, the cash or investments will come out of the tax efficient wrapper and go into the overall estate, to be divided according to whatever is laid out in the will. It may also be subject to Inheritance Tax.
What passes to the surviving spouse isn’t the ISA itself, but an additional ISA allowance – equal to whatever their spouse held in ISAs at the time of their death. It’s known as an Additional Permitted Subscription allowance – or APS.
This is held with the deceased spouse’s ISA provider. However, you don’t have to use the same provider – you can move it elsewhere. Just check with your preferred ISA provider whether they accept APS transfers, then sign up and get them to arrange the move.
The investment or saving can be made in cash – either as a lump sum or (if the provider allows it) through monthly contributions. There’s usually a three-year limit on using your allowance.
Alternatively, if the surviving spouse inherited ISA investments, they can make an ‘in specie’ transfer of the same investments into a Stocks and Shares ISA with the same provider.