When it comes to ISA transfers, there’s a lot of information about a wide range of different rules and cases.
To make things easier for you, we’ve pulled everything around ISA transfers into one place.
What is an ISA?
Starting at the beginning, an ISA, or an Individual Savings Account, is a way to put money aside in a tax-efficient way. However, there are limits to how much you can put into an ISA each year – it’s currently £20,000.
There are four different types of ISA:
- Stocks and Shares
- Innovative finance
Each year, you are only allowed to open and pay into one of each, and your ISA limit is spread across all four types. It’s worth noting that you can only put £4,000 a year into a Lifetime ISA.
Why does all this matter? Because the government gives you a limit on how much you can save or invest each year, an ISA transfer allows you to carry money built up in previous years to a new account.
For example, if you maxed out your ISA allowance for the past two years and were lucky enough to have £40,000 in your account, then it would take you two more years to be able to tax-efficiently move this money across if you were unable to transfer an ISA. That would also mean that for two years you’d be unable to add any more funds to your savings.
Can I have more than one ISA?
Yes and no. You can have up to four active ISAs open at any one time, but they must all be different types – for example, one Lifetime, one Cash, one Innovative Finance, and one Stocks and Shares. You cannot have two or more of a single type open and active at any one time. By active, we mean paying into within that tax year.
For example, if you already have a Cash ISA that you’ve paid into in previous years, but you open a new one this year, then that’s fine. However, you cannot then pay into your new ISA and your old ISA in the same tax year. If you want to combine these two ISAs, then you will need to consolidate them through an ISA transfer.
What is an ISA transfer?
An ISA transfer is a process that lets you move money built up in previous years to a new provider without losing the tax-free status of that money. Using the example above, you can move the full £40,000 saved in previous years all in one go and still have your £20,000 allowance from this year.
You can transfer an ISA from one provider to another or use it to move your money between different types – if you wanted to move your money from a Cash ISA into a Stocks and Shares ISA for example.
While this entire process is relatively straightforward, there are a few rules you’ll need to follow to ensure everything runs smoothly.
What are the ISA transfer rules?
There are a handful of rules around what and when you can transfer an ISA, but it’s a good idea to check that you fall inside of these rules so that you can maintain the tax status of your money and ensure a seamless transition between providers. Here are some of the key ISA transfer rules:
- When moving an ISA that you’ve opened, or paid into, in the current year then you’ll have to move the full amount.
- Always use the official transfer in form when moving an ISA, this will be given to you by your new provider. Do not withdraw this money to move it. Doing this will void the tax-efficient status of your savings.
- When transferring an ISA that has been built up in previous years, you will have the option to choose how much you move – this could be the full balance or just a part of it.
- You can transfer any type of ISA into another type - for example, if you wanted to move your Cash ISAs into Stocks and Shares ISA. There are two exceptions here:
- With an Innovative Finance ISA, you are able to transfer the cash out of this type of ISA, but may not be able to transfer other investments.
- If you choose to transfer a Lifetime ISA to a Cash ISA or Stocks and Shares ISA, you’ll lose your bonus, but from April 2021 the penalty will be increased to 25% which means a loss of just over 6%.
- Not all ISAs allow transfers in, but all must allow transfers out. Be careful to check this when looking at providers.
- Some providers charge a penalty for exiting or transferring out before a certain date – this is particularly common with fixed-term Cash ISAs.
- Additionally, some providers charge a fee for transferring ISAs in, so make sure you check that before choosing a provider.
Fees and charges aside, there are no limits to the number of ISA transfers you are able to do, or a restriction on when you can do it. You could transfer an ISA once a month every month (or even more frequently) if you wanted to.
Why transfer an ISA?
Probably the most common reason anyone looks to transfer (especially a Cash ISA) is to get the best ISA rates.
We mention Cash ISA there, as these often deliver a fixed rate for a certain amount of time, which means you need to regularly move your money to find the best ISA rates going. However, best rates don’t just apply to Cash ISAs, as any fees you need to pay for other ISA types can eat into your profits.
In order to find the best Investment ISA, you will need to look at the service they offer, the cost of their management and investment fees, any restrictions of fees included for being able to transfer in or out, as well as any additional features you could benefit from.
Other reasons to consider transferring your ISA may include moving to a provider who offers better customer service or delivers additional features that your existing provider doesn’t offer. Similarly, with Investment ISAs, you may have been underwhelmed by their performance to date and therefore want to see how other providers’ investment strategies compare.
How to find the best ISA?
Best is quite a subjective term – for example, the ISA that provides the highest rates may be considered the best, but if you have a minimum deposit of £10,000, then it would exclude a large number of people. Similarly, you could get an inflation-beating fixed rate for one year, but the exit fees that follow may make any gains redundant.
In order to find the best ISA, you need to first understand what it is you want from your money. Are you looking to try and make a profit, do you simply want to beat inflation, or do you want to build up an emergency savings pot tax-free?
All these things would change not only which ISA is best, but possibly even which type of ISA you should be looking at.
For example, when building up your emergency savings, a Cash ISA would provide you with a relatively risk-free place to keep your money, whereas with a Stocks and Shares or Innovative Finance ISA you’d need to be comfortable with the idea that you may lose some money by taking a chance to earn more.
Here are a few things you should consider when trying to find the best ISA for your needs:
- What is your end goal?
- How long are you planning to save for?
- Have you already got an emergency savings pot?
- What are the interest rates provided, and are they fixed?
- Are you comfortable with taking more risk for a chance of earning more money?
- Do you want a fixed rate of return?
- Are you saving to buy a house or retire?
- What other services does that provider offer?
- How good is their customer care team?
- Do they offer an online platform?
At the end of the day, the best ISA is one that works for you. This is why it’s generally considered a good idea to know what you want to achieve through savings and get to grips with the level of risk that’s acceptable to you.
Choosing the best Stocks and Shares ISA provider
If you’ve decided that investing is right for you, and you’re happy to take the risk, then finding the best Investment ISA is probably your next course of action.
It’s important to be meticulous in your search, as the difference in costs between providers can be huge, and as the cost eats into your profit, you want to try to keep them relatively low. Similarly, the services offered are very different. For example, at Wealthify, our experts built the investment plans for our customers, but some Stocks and Shares ISA providers require you to research, choose, buy and sell your own investments.
If you aren’t ready to choose your own investments, then there are a number of providers who will build an investment plan for you. When looking at these, you should think about the level of flexibility they offer, if they can tailor your investments to match your appetite for risk, how they invest, whether they diversify their investments globally, and how much their investment costs and management costs are.
To have the best experience, you should think about choosing a provider that lets you choose a strategy that matches your needs, offers a good level of service, and has competitive fees.
Five-Step Process to transferring your ISA
As you can transfer an ISA at any time and from any provider, you would be forgiven for thinking that this would be a long-winded, lengthy process. But the truth is, it’s incredibly simple to move your ISA.
Regardless of what provider you have or choose to move to, the process always follows the same five steps:
Step One – Find Your New Provider: The first thing you want to do is find a new provider or product to move to. For example, you may wish to move from Provider A to Provider B, or switch from a Cash ISA to a Stocks and Shares ISA without changing who your ISA is with. Both of these situations would require an ISA transfer.
There are a lot of options to consider here, including what type of ISA you wish to move to. And, you are choosing an Investment ISA, then you have more decisions to make – do you want a DIY option where you pick your own investments, or do you want a team of experts to manage your investments for you as Wealthify does?
Step Two – ISA Transfer Form: Once you know where you’re planning on moving your money to, and the type of ISA you want, then let your new provider know that you want to transfer an ISA in. This may be a form that is included on their website’s sign up journey, or they may directly be in touch with you to sort out the details.
The important thing here is the ISA transfer form. You’ll need to complete this form before you are able to move your money. If you withdraw the money without using this form, then it will count against your tax-free allowance if you choose to reinvest in an ISA.
If everything is filled out correctly, then your new provider will organise everything and move your money over for you.
Step Three – Check for hidden or additional fees: When leaving an old provider, you may notice that there are some additional fees that you have to pay. This is quite common when transferring investments, as some providers may charge you a fee for each stock you want to transfer out.
It may be possible to have your new provider cover these charges for you. Otherwise, this fee could run up into the hundreds.
Step Four – Transferring: This is when your new provider moves the money away from your old provider. There’s nothing for you to do here, except sit back and wait for the money to hit your new account. If this process does start to drag, however, don’t be afraid to give your providers a gentle nudge. Either one should be able to tell you exactly why the transfer is taking longer than you expected. We’ll cover expectations shortly.
Step Five – Make sure it’s all there: For the majority of cases, this step is just common-sense check to ensure that your new provider seamlessly transferred your old ISA. However, with Stocks and Shares ISAs, you may be entitled to some additional payments that came in after you transferred – for example, dividends can sometimes be paid two months after a qualifying date. Normally these will be automatically sent to your new account, but it never hurts to check!
How long does an ISA transfer take?
There are a number of different factors which can impact how long an ISA transfer takes – for example, moving from one type of ISA to another generally takes longer than moving between Cash ISAs. Also, some providers rely on manual transfers, where others may be quicker by using an electronic process.
Transferring between Cash ISAs: Most Cash ISA to Cash ISA transfers will take around 15 days from start to finish. As you’re just moving cash between accounts, this is a relatively straightforward process and should be relatively quick.
Transferring from Stocks and Shares ISA to a Cash ISA: If you are moving from a Stocks and Shares ISA to a Cash ISA, then this could take up to 30 days. This is because of the increased complexity that’s involved in the process. For example, before your money can be transferred, your provider will have to sell off your investments, convert currencies, and wait for funds to be released from any custodian. This process takes time, and so your ISA transfer may take a bit longer.
Transferring between Stocks and Shares ISAs: If you’re transferring from one Stocks and Shares ISA to another, then you may have the option to move the investments you hold to your new provider without selling them. This is often called an ‘in specie’ or ‘re-registration’ transfer and can take between four to six weeks. It’s worth noting that not all providers accept or allow these types of transfers, as this can be extremely complex and require working with a large number of different providers causing timescales to be unpredictable. If this option is available, you may have to pay further exit fees to do so – sometimes up to £25 per holding!
A more common way to transfer between Stocks and Shares ISA is a cash transfer, which works in the exact same way as moving to a Cash ISA which we mentioned above. You’ll maintain the tax-efficiency of your money, but you will not be invested during the time of the transfer, which means your money will not be positively or negatively impacted by market movements.
Transferring from a Cash ISA to a Stocks and Shares ISA: With interest rates at historic lows mainly due to the Covid-19 pandemic, many people are considering transferring their Cash ISA to Stocks and Shares ISA, and this could be a good option for investors looking for inflation-beating returns. However, if you choose to make this transfer, you will need to understand the security that you’re giving up by moving away from a Cash ISA. Stocks and Shares ISAs may offer more potential but in order to achieve that you need to take on the risk that you could lose money if the markets fall.
If you’re a first-time investor, then using a platform like Wealthify to manage your investments can help to get you started easily and cost-efficiently. Our team of experts build you a carefully tailored plan based on your desired level of risk, and then monitor and make changes when necessary to keep you on track. This means that you can invest without spending lots of time on it or having to.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.