ISAs are a great way of getting more from your money, but with the tax man looking over your shoulder you have to play by certain rules in your quest to avoid plummeting interest rates. Here are your ISA transfer questions answered.
Most banks tempt savers with introductory interest rates only to slash them further down the line.
Transferring your savings to a new home every time the interest rate falls is essential if you want to ensure your money continues to earn as much interest as possible.
Yet when it comes to ISAs, you may be unsure whether you can move your savings around without the tax man coming a knocking due to the strict rules that govern these tax free savings accounts.
It is possible to transfer ISA savings but you need to be careful how you do it. Here’s what you can and can’t do...
1. How much can I 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 2012/13 tax year you can save a maximum of £11,280 in ISAs with up to £5,640 of this saved as cash in a Cash ISA.
The rules also state that 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, and you can transfer the money within them to new ISA accounts with different providers - you just can't pay new money into them all.
This is where a lot of the confusion surrounding ISAs arises - providing you get your provider to move the money for you transfers from old ISAs, even into brand new accounts don’t count as part of your annual allowance. This means that 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 rules.
2. So can you pay into more than one ISA each tax year?
HMRC state that you must “not have subscribed to another ISA of the same type in that tax year”.
This means that you can only pay new money into one Cash ISA and one Investment ISA over the course of a 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. As such you are free to move savings held in a previous years’ Cash ISAs to new accounts paying a better rate of interest without it taking up this year's ISA allowance.
But be careful, this is only the case if you transfer money between ISAs with the help of the account manager. Withdraw the money yourself and 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?
Moving money from a Cash ISA to an Investment ISA is permitted under current ISA rules but it is a one-way path.
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.
So if you opened a new Cash ISA in April and deposited £3,000 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 – providing the original Cash ISA was closed following the transfer.
4. Can you transfer this year’s Cash ISA savings elsewhere?
Moving your current tax year's Cash ISA savings to a new home is subject to more restrictions than shifting previous years’ Cash ISAs, but it is still possible.
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.
With ISA allowances from previous years you have more flexibility. You can split up money you hold in 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?
In most cases you can split and transfer your ISA savings as you see fit.
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 £2,500 into a 1 year fixed rate ISA, £2,500 into a 2 year fixed rate ISA and the remaining £5,000 in an instant access ISA – providing you move your savings via an ISA transfer. This isn’t considered by the tax man as the same as opening 3 new ISA accounts.
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 savings from more than one Cash ISA into a single new account?
Yes, you are free to transfer as many old Cash ISAs into one higher paying Cash ISA account as long as it accepts ISA transfers.
Just remember to contact your Cash ISA provider to arrange the transfers through them.
7. Can you transfer more than one ISA each tax year?
There are no restrictions on the number of ISA transfers you can make over the course of a tax year. So you can choose to transfer money from several old Cash ISAs to a number of different new Cash ISA accounts, as long as you don’t deposit any new cash, and all the accounts accept transfers.
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. How long should an ISA transfer take?
Under current guidelines, an ISA transfer should take no longer than 15 days to complete.
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.
For more help read our guide How to complain about financial services.
