ISA Transfer Rules Explained – All You Need To Know

Everything you need to know about transferring funds from one ISA to another.

What is an ISA?

An ISA (interest savings account) is a tax-free savings account which allows you to save up to £20,000 per annum. An ‘annum’ in this sense is the tax year, so from April to April you have a ceiling of £20 grand you can save without any tax being taken off you.

ISAs protect your money and ensure you can work towards your savings goals without taxation.ISA Transfer Rules Explained - All You Need To Know Fair Investment

There are different kinds of ISAs which have different benefits – e.g. Cash ISAs, Flexible ISAs, Lifetime ISA , Investment ISA and Innovative ISA.

The £20,000 limit applies to all forms of ISA accounts – so if you have one ISA, this can have up to £20,000 in the one account. But if you have one of each type of ISA, then you are only able to put a maximum of £4000 in each of these accounts in one year.

Why would I want to transfer my ISA?

When looking to open an ISA, you will shop around for the best deal possible to make sure you can maximise the interest you will gain on your savings.

But what if you find a better deal after you’ve already got an ISA?

You can only open one new ISA each year, so if you want to take advantage of a newly found better deal, you will need to transfer your ISA to the new provider. This is an important choice to make sure you can get the best possible deal on your savings.

If you are looking to transfer an Investment ISA, there are reasons for transferring you might be considering beyond a better interest rate on he account. Another bank or provider might offer a lower rate of fees or not charge as much in management commissions. A new provider might offer a better range of choice for your funds to be invested into.

ISA Transfer Rules Explained - All You Need To Know Fair Investment

The Rules of Transferring

If you want to transfer your ISA account to a different account then there are a few rules with you need to make sure you follow. There are some different rules for some specific forms of ISAs, so making sure you’ve got those down is important, so you’re not caught out by surprise regulations.

You should…

  • Ask your providers to switch
  • Your previous bank are required by law to let you transfer – but your new bank is not required to accept, so it’s important to make sure this is a viable switch before attempting a transfer
  • Make sure the banks do the legwork
  • It’s really important to make sure the providers make the transfer rather than doing it by yourself – if you decide to do it yourself, your transfer could be viewed as a deposit meaning that your savings could lose their tax-exempt status, which defeats the point of an ISA.
  • Know how long it will take 
  • Once you have contacted your desired new provider, you will need to then fill out their paperwork – after which point, it will take about 15 days for Cash ISA transfers to go through and about 30 for any other form of ISAs to go through.
  • Research the penalty policies 
  • Some providers will charge a penalty is you decide to switch, so it’s worth knowing this beforehand to make sure you’re not caught out by any unanticipated charges.
  • Know your limits 
  • You cannot split an ISA from the current year between more than one other account – if you want to transfer, then you need to transfer all of this in one lump sum.
  • If you decide to put all the money from your previous ISAs into one bank account, it will only be protected up to the FSCS limit of £85,000

You can…

  • Transfer any ISA you hold, whether it is from this year or previous years.
  • Split previously held ISAs, so that you can distribute your money between different accounts.
  • Move money from your Stocks and Shares ISA to your Cash ISA, even if these are held with the same provider or a different one.
  • Hold as many ISAs from previous years as you would like – or as you have been able to open in the past, as long as this does not exceed one per year.

ISA Transfer Rules Explained - All You Need To Know Fair Investment

Some special rules to be mindful of…

There are certain situations where transfers need to happen – such as in the event of the death of a husband or wife, and their funds needing to be transferred to their loved one.

If your spouse/civil partner has died, and had an ISA account, then you are able to transfer this funds to the living partner, assuming that they passed away on or after 3/12/14 when regulations were changed.  From this point on,  you can get an ISA allowance which will go up to the same amount they have at the time of death. This means that there would be no issues transferring the money from the deceased spouse’s ISA to the living spouse.

You can also open ISA accounts for your children, known as Junior ISA (JISA). Similar rules apply to this as to other forms of ISAs when it comes to transferring – you can only open one per year, and while you can transfer, it can only be in one lump sum if that ISA is active.

 

Written by Isla Geddes ,
29th January 2020