ISAs offer a great way to save money and avoid very low interest rates. You do though need to be aware of the tax rules, here are answers some of your ISA transfer questions.
With many savers losing out to inflation it is essential to find the best home for your savings.
As you may be aware, many banks tempt savers with introductory interest rates but then cut them once they have you as a customer.
Transferring your savings to a new home every time the interest rate falls is vital to help ensure your money continues to earn as much interest as possible.
It is possible to transfer ISA savings but you need to be careful how you do it to ensure you don’t contravene the strict tax rules that are associated with these savings accounts.
With the help of Money.co.uk, here’s a look at what you can and can’t do…
1. What’s the maximum you can save in ISAs?
Regardless of the number of transfers you make and the number of different Cash ISA accounts from previous years you hold, the amount of ‘new money’ you can save in ISAs each tax year is capped.
For the 2011/12 tax year you can save a maximum of £10,680 in ISAs, of which up to £5,340 can be saved in a Cash ISA.
You can only pay new money into one Cash ISA and one Investment ISA each tax year (April 6th one year to April 5th the following year).
You can still hold savings in multiple Cash ISAs and Investment ISAs from previous tax years. You can transfer the money within these accounts to new ISAs with different providers but you can’t pay new money into them all.
As long as you get your provider to move the money for you transfers from old ISAs, including into brand new accounts, it doesn’t count against your annual allowance. In this way you can transfer money in old ISAs to new accounts and pay new money into an ISA during the same tax year without breaking any tax rules.
2. Can you pay into more than one ISA each tax year?
The rules from HMRC state that you must “not have subscribed to another ISA of the same type in that tax year”.
So you can only pay new money into one Cash ISA and one Investment ISA in any one tax year if you don’t want to pay tax on the interest you’ve earned.
However, ISA transfers aren’t counted in the same way as you’re not paying new money into an account, simply moving the money you already hold in ISAs around. This means you can move savings held in a previous years’ Cash ISAs to new accounts paying a better rate of interest without using up this year’s ISA allowance in doing so.
You must though transfer money between ISAs with the help of the ISA account manager. If you don’t and withdraw the money yourself, it’ll lose its tax free status and you’ll have to put it in an ordinary, taxable savings account instead.
3. Can you move savings between Investment ISAs and Cash ISAs?
You can move money from a Cash ISA to an Investment ISA but you cannot transfer money from your Investment ISAs into Cash ISAs.
Money transferred from a Cash ISA to an Investment ISA during the current tax year is treated as if it had always been held in the Investment ISA.
As such, if you haven’t used all of your ISA allowance you can choose to use any amount remaining to add to the Cash ISA you transferred the money from or, if this Cash ISA is now empty, pay anything additional into a different Cash ISA account.
This means if you opened a new Cash ISA in April and paid in £3,500 of new money before deciding to transfer the full balance to an Investment ISA in June, you would then be able to open a new Cash ISA and save up to your Cash ISA limit in the same tax year. The proviso is that the original Cash ISA was closed following the transfer.
4. Can you transfer this year’s Cash ISA savings to somewhere else?
You can move moving your current tax year’s Cash ISA savings to a new home but there are more restrictions on doing this than moving previous years’ Cash ISAs.
When you transfer your current year’s Cash ISA you must move all of the money inside as a lump sum, so you aren’t subscribed to more than one Cash ISA for that tax year.
You are also free to move your Cash ISA to an Investment ISA and then start again with a new Cash ISA as long as you don’t exceed your ISA allowances.
You can split up money you hold in previous years ISAs and transfer it to as many different ISA accounts as you like – as long as you arrange the transfers through your ISA account manager or Cash ISA provider.
5. Can you split ISA savings between a number of new accounts when you transfer?
Yes you can split ISA savings as you want to in most cases.
For example, if you have £10,000 in a Cash ISA that you haven’t paid into this tax year, you can choose to split up the money inside and transfer it between as many new Cash ISA accounts as you please.
You could choose to put £5000 into a 2 year fixed rate ISA and the remaining £5,000 in an instant access ISA. As covered before you must though move your savings via an ISA transfer.
As long as you only transferred money from previous tax years’ ISAs and don’t pay any new money into the accounts they wouldn’t count towards this year’s ISA allowance.
The only exception to this rule is with your current tax year’s Cash ISA allowance, which cannot be split and must be transferred whole.
6. Can you transfer from more than one Cash ISA into a single new account?
You can transfer as many old Cash ISAs into one higher paying Cash ISA account as long as it accepts ISA transfers. As always though the transfer must be done via your ISA provider.
7. Is it possible to transfer more than one ISA each tax year?
As long as you don’t deposit new cash and the new accounts accept transfers, there are no restrictions on the number of ISA transfers you can make over the course of a tax year.
To do this you will need to contact the bank or building society that each of the new ISAs is with to give them your existing Cash ISA account details to arrange the transfer.
8. Does an ISA transfer take very long?
An ISA transfer should take no longer than 15 days to complete according to the current guidelines.
If you find that it is taking longer than this you need to contact your ISA account manager to check why the transfer has not been completed.
If you are not satisfied with their explanation for the delay you may need to complain about the service you have received.