ISA Transfer Rules and Rates explained

Look no further if you’re looking for a simple and tax-efficient way to grow your money. An individual savings account (ISA) can help you maximise your returns, but with many options available, it can be difficult to know if you’re doing the right thing with your allowance. This insight blog on the subject of ISA transfer rules can help you with your decision-making.

Different ISAs serve different purposes, with varying levels of risk operating over different time scales. As a result, choosing the best ISA option depends on the broader financial context and the individual making the investment. For example, the traditionally safe investment of a cash ISA has shown negative real returns over the past decade, and the situation is unlikely to change any time soon.

Can you transfer multiple ISAs into one? Yes, you can, but with that in mind, should you? Well, yes, in certain circumstances, you should. This article will help by explaining the ISA transfer rules, which will help you understand the decision you are about to make. Alternatively, contact us here at Moneyfarm to discuss your options.

What is a cash ISA?

Cash ISAs are savings accounts available to people who want to save money without paying tax on any interest earned. To get an account, you need to be over 16 years old, and you must be a UK resident. Cash ISAs are good for savers who have a short time horizon and want somewhere tax-efficient to keep their savings until they need their money.

You can choose either a fixed-term or a variable-rate cash ISA. A fixed-term cash ISA guarantees a set interest rate for your money, which is locked away for a certain period of time. The longer the period, the higher the interest rate. A variable-rate cash ISA pays a variable interest rate that may change over time depending on the Bank of England base rate. So, a variable-rate cash ISA pays more when the Bank of England base rate rises.

The ISA transfer rules say you can withdraw funds from variable-rate ISAs at any time without notice or incurring charges. However, it would be best to have a flexible cash ISA if you want to withdraw and replace the money without affecting your current ISA allowance. When you save money in a cash ISA, your provider pays you tax-free interest on your savings. You can open cash ISAs with most high-street banks and building societies, although, at present, you can only pay into one cash ISA in a single tax year. This changes from the 6^th of Aril 2024, when you can pay into multiple ISAs during the same tax year.

With the returns on cash ISAs negligible for some time, any money being kept in an easy-access cash ISA, a type of variable cash ISA, has probably lost value due to inflation.

Imagine keeping a £20,000 ISA allowance in your cash ISA for one year. If inflation sits at the Bank of England’s 2% target, you’ll need to make £400 to retain the purchasing power of your savings over that time. This is particularly difficult to do in times of low interest rates.

Savvy savers who have paid off expensive debt and have enough money in a cash account to cover three months of outgoings in case of an emergency are looking for something more. They are turning to the financial markets to hunt for inflation-beating returns over a medium to long-term time horizon, and understanding the ISA transfer rules is key.

What is a stocks and shares ISA?

Stocks and shares ISAs are called ‘tax wrappers’, used by those who want to make their money work a little harder. Stocks and shares ISAs are tax-free investment accounts that allow you to invest in a wide range of different assets. There are several different types of investments you can hold in your ISA. They include unit trusts, investment trusts, exchange-traded funds, individual stocks and shares, corporate bonds, government bonds, and open-ended investment companies.

Any investment made inside an ISA is tax-free. Hence, no income tax, capital gains, or dividend tax is imposed on stock and shares ISAs. You can invest up to the ISA allowance each year, and the tax wrapper will protect all dividends and capital growth until you want to take your money out.

Although you’re taking on more risk than you would with a cash ISA by investing in the financial markets, you can manage this risk by building a diversified portfolio that reflects you.

We are all unique. Hence, our goals (SIPP vs ISA) or risk tolerances will differ. These characteristics help build our investor profile, which should influence how you invest and your portfolio asset allocation.

If you’re more risk-averse and have a short time frame, you might have more significant exposure to fixed income over equities. However, if you’ve got a long-term time horizon and can afford to take on more risk with your money, you’ll have a higher proportion of riskier assets like equities in your portfolio. By understanding the ISA transfer rules and building a portfolio around your goals and risk tolerance, you’re giving yourself the best chance of meeting these goals over the long term.

What is the ISA allowance?

Individuals have an annual ISA allowance of £20,000, which is how much you can put in an ISA. Alternatively, you can split your allowance between a stocks and shares ISA, cash ISA, Lifetime ISA (LISA), and an Innovative Finance ISA.

Currently, you can only set up and pay into one of each ISA product in the tax year – although you can split your contributions between multiple portfolios with different risk levels. But as just explained, soon you’ll be able to pay into multiple ISAs in the same year. In addition, many stocks and shares ISAs are flexible, which means you can put money in, take it out and replace it within the tax year without affecting your ISA allowance.

You don’t have to use all of your £20,000 ISA allowance, just what you’re comfortable with.

It’s worth remembering that the ISA allowance has a lose it or use it rule. You can’t roll it into the next tax year. If you don’t maximise the use of your ISA allowance in a given tax year, you will lose it.

Investing in cash ISA or stocks and share ISA

Cash savings accounts are an essential part of financial planning. However, since they are not exposed to short-term fluctuations in the stock market, you could be missing out on returns by not taking any risk.

Understanding the best way to manage your money can be difficult, but this can lead many savers to accept the negligible returns on cash ISAs over investing in the financial markets in the search for inflation-beating returns.

This can be a costly decision to make. We recently conducted a cash ISA vs Stocks and Shares ISA study comparing the returns from a cash account to a stocks and shares ISA. In periods of low interest that fail to outpace inflation, cash loses its actual value over time. As a result, it can represent a poor investment for anyone looking to preserve and grow their wealth in the long term. Naturally, volatility over the period for the stocks and shares profile was higher, but the returns to be made were significantly greater over a more extended period.

Can you transfer an ISA and open a new one in the same year? Yes, but at the present, you can only do so if you are transferring the whole amount. However, that is about to change from April 6, 2024. From then onwards you can make partial transfers, and as long as you do it via the official ISA transfer process, it won’t affect your ISA allowance.

You can always transfer ISAs if you invested in the wrong type of ISA, and following the ISA transfer rules will ensure the process costs you nothing.

Why should I transfer my ISA?

The ISA transfer rules allow you to transfer funds from one type of ISA account to a different type of ISA account. Also, you can transfer cash held in one type of ISA account to another type of ISA account.

Can you transfer ISAs within the same provider? Yes, you can. Whether you transfer it within the same provider or to another provider, as long as the ISA transfer rules are followed, it shouldn’t affect your annual allowance.

There are many reasons why you should consider transferring your ISA.

Poor interest rates and investment returns: Cash ISAs might have better interest rates from when you opened your account, so you might want to change providers or transfer money held in one cash ISA to another cash ISA. You might get better deals due to the Bank of England base rate changes. Also, your current investment ISA provider might be giving you returns that don’t match your financial goals, so you might want to transfer ISAs for better returns and interest rates, and the ISA transfer rules facilitate this.

Consolidate old ISA accounts: Consolidating your money is an excellent idea if you have lots of savings and investments. If you have ISA accounts from previous tax years, consolidating them is a great way to manage your finances and accounts. Considering the FSCS limit of £85,000 would be best when consolidating your ISA accounts.

Change in investment strategy (Diversification): Changes in age, lifestyle, and available capital can affect your investment strategy. People always evaluate and realign their investment strategies as they grow. For instance, investment strategies in your 30s wouldn’t work in your 60s because your risk tolerance decreases as you age. Transferring a cash ISA into a stocks and shares ISA for long-term growth is more logical for a young investor, while an older person will want a more diversified portfolio to spread their risk.

New financial goals: New saving goals due to changes in individual circumstances can cause you to transfer ISAs. If you need to build an emergency fund, transferring from a stocks and shares ISA to a cash ISA is ideal as it creates a risk-free environment. Perhaps you already have a healthy sum of money saved up and now want to lock it away for a longer period of time. The ISA transfer rules allow you to transfer your cash held in a cash ISA into a stocks and shares ISA or innovative finance ISA.

High management fees: Some types of ISAs, such as stocks and shares ISAs, may charge an additional fee for management services. Therefore, it is smart to transfer ISA accounts and switch to a new ISA provider offering low fees, as management fees can eat into your savings.

Product availability: Not all ISA providers offer all the different types of ISA accounts. For instance, innovative finance ISAs are not traditionally provided by many ISA providers. Also, if you are looking for flexible ISAs, you might have to transfer your ISA to a provider that offers such a product.

How long does the ISA transfer take?

If you choose to transfer an ISA, how long it will take depends on the type of ISA account.

Cash ISA: Transfer is completed within 15 working days.

Stocks and shares ISA / Others: Transfer is completed within 30 working days

If the transfers take longer than the days stated above, you should contact your ISA provider. If the issue persists, you can take it up with the Financial Ombudsman Service.

ISA transfer rules between different types of ISAs

People may choose to transfer a cash ISA into a stocks and shares ISA and vice versa. Follow the ISA transfer rules, and the process should be seamless, depending on the ISA provider. For junior ISA, transfers can only be made between cash junior ISA and stocks and shares junior ISA. The junior ISA transfer rules ensure that you cannot transfer to other types of ISAs until the 18^th birthday of the account holder.

Transferring to a lifetime ISA (LISA) account is straightforward. However, transferring from a lifetime ISA to other types of ISAs is quite complicated as there are specific ISA transfer rules regarding lifetime ISAs. You can transfer the previous tax year’s contributions from a different kind of ISA into a Lifetime ISA, but the amount transferred will count towards the £4,000 annual ISA allowance for LISA. Please note that the transfer amount doesn’t affect the overall annual ISA allowance for the tax year. Check with your new ISA provider if they offer LISA accounts.

Transfers are more complicated with an innovative finance ISA (IFISA). You can transfer cash investments in an innovative finance ISA into other ISAs. However, the transfer of non-cash investments in an innovative finance ISA is not possible. To transfer from a stocks and shares ISA into an IFISA, the investments in the stocks and shares ISA account have to be sold and converted to cash.

An ISA transfer can occur within the same provider or with a new provider. You can combine ISA accounts from previous tax years. For instance, the ISA transfer rules indicate that you can transfer any amount from older ISAs into an innovative finance ISA without affecting the current tax year allowance. It’s a costly mistake to close old ISA accounts as cash and investments in an ISA will lose the tax benefits.

Check the ISA transfer rules of your new ISA provider. Also, ensure they offer the various types of ISA accounts and accept ISA transfers.

Transfer ISAs: All the Advantages

There are some advantages when you transfer your cash into an ISA account or transfer ISAs.

• Taxes: No capital gain tax, income tax or dividend tax on returns.
• Tax-free withdrawals: All withdrawals from cash ISAs and stocks and shares ISAs are tax-free.
• Diversification: You have a wide range of assets and portfolios to choose from. Regardless of your risk tolerance and financial situation, there is always an ISA account that fits your financial goals.
• Inheritance: When you die, your ISA account is passed on to your spouse. However, the beneficiary might have to pay inheritance tax.
• No age restrictions: There is a lower age limit of 16 years for opening a cash ISA and Junior ISA, but there is no age restriction for JISAs opened by parents or guardians. However, there is no upper age restriction on the money invested in an ISA.
• No loss of status: When you transfer ISAs, the ISA accounts do not lose their ISA tax-exempt status.

What is the best time to transfer an ISA?

There is no absolute best time to transfer an ISA, but there are circumstances to watch. For example, if you come across a new ISA product or provider offering better terms than your current provider, that can be the best time to make a transfer, following the ISA transfer rules.

Another circumstance that might make you think about instigating a transfer is when inflation outstrips the interest your savings are earning. If your savings are in a cash ISA, this is likely the case, and transferring your funds to an investment (stocks and shares) ISA could actually result in the interest bettering inflation in the long term. Of course, you have to be prepared to accept some risk.

Transfer cash ISAs into stocks and shares – Moneyfarm

All you have to do to transfer your ISA to Moneyfarm is fill in a form online. Then, send it back to us, and we’ll do the rest. We’ll also never charge you a fee to transfer in or out of Moneyfarm, although your current cash ISA provider might.

You can find the ISA transfer form in the ‘actions’ section inside the details of your ISA portfolio. Once we have your ISA form, it typically takes between 15 to 30 days to transfer, although this is up to your current provider.

It’s essential that your ISA transfer is done correctly and that you follow the Bed and ISA transfer rules. Otherwise, you could break the tax-free wrapper around your savings.

You can transfer any type of ISA to Moneyfarm, whether it’s a cash ISA or stocks and shares ISA. Unlike topping up your ISA, there’s no deadline for transfers, as moving your ISA around doesn’t count towards your annual ISA allowance.

Just remember, if you’re making an ISA transfer within the same tax year, you’ll have to move the whole thing to make it easier for the government to keep on top of ISA contributions. With older ISAs, you can choose how much you want to transfer. This all changes from the 6^th of April 2024, when the new ISA transfer rules kick in. Then partial transfers will be possible no matter when you paid in the funds.

At Moneyfarm, our mission is to make our investors’ money work harder for them. We take care of the details while giving our investors as much control as they like so that they can get on with the things that really matter to them. Holding a stocks and shares ISA shouldn’t be a complicated part of your life – starting with the transfer, we make sure it’s as simple as possible.

Does an ISA transfer count as a new ISA?

The ISA transfer rules say that transferring an ISA does not count as opening a new ISA account, even when you transfer an ISA within the same provider.

To be clear, you don´t have to have an ISA account ready. You can open a new ISA with a new provider. That new ISA can be a stocks and shares ISA, and money from your existing cash ISA can be transferred into it in the same tax year. Because your money remains within a tax wrapper, even if you transfer ISAs across the different types, it´s still protected from the taxman.

However, you need to understand that a stocks and shares ISA is riskier than a cash ISA. Yes, your investment could fall in value due to market movements, but they could give you significantly better returns in the long run; in fact, going by past performance, that could be the case. However, past performance is not necessarily a guide to future performance. There will always be an element of risk.

FAQ

Can you transfer from one ISA to another?

Yes, you can transfer from one type of ISA account to another or change providers. However, there are specific ISA transfer rules, and not all ISA products accept transfers. For example, if you are transferring an ISA opened and contributed to in the current year, at the moment, you must transfer the whole ISA. However, this rule will not apply from the start of the new 2024 tax year.

For previous year’s ISAs, you can choose to transfer some or all of the amount.

Does an ISA transfer count as a new ISA

No, the ISA transfer rules indicate that transferring an ISA account does not count as opening a new ISA account. Hence, the transfer will not affect your ISA allowance.

What happens when you transfer an ISA?

Your cash investments are transferred while the stocks and shares investments within an ISA are sold and reinvested. But, never withdraw funds to transfer an ISA. Enlist the help of a professional adviser who will follow the Bed and ISA transfer rules.

Can you combine ISAs of the Lifetime Type (LISAs)?

Yes, you can combine LISAs to buy your first property up to the value of £450,000, but only as long as the names of both parties appear on the mortgage deed.

Does transferring an ISA count as paying in?

Providing you use the services of a financial adviser and they follow the ISA transfer rules, transferring an ISA is not considered as paying in. The transaction(s) are done simultaneously, so the money always remains within the ISA tax wrapper bubble.

Can I transfer an ISA to the same provider?

Yes, you can transfer an ISA within the same provider or transfer to another provider. Either way, it shouldn’t affect your ISA allowance.