Q&A: What are the Isa transfer rules?

How much can you hold in cash and stocks and shares now?

On 1 April 2015 the Isa allowance increased to £15,240, and since July 2014 savers have been able to hold a mixture of cash and shares in their Isas and switch between them to make up that limit. The most recent budget also introduced new flexibility, which allows you to withdraw and replace money from your cash Isa without counting towards your annual Isa subscription limit, as long as the repayment is made in the same tax year as the withdrawal. But some savers remain confused when it comes to transfers and the fees they could incur with transfers.

From 1 July 2014 Isas were transformed into new Isas and for the first time investors were able to save equal amounts in cash and shares. Before this you could only put half your allowance into shares and half into cash (a maximum of £5,940 in a cash Isa and £11,880 in a stocks and shares Isa) or all of your investment into shares.

The new rules mean that although there is still a savings limit, you can split the amount in whatever distribution you like between cash and shares, or use the whole amount for one or the other. You can also now transfer those amounts between cash and shares.

It is easiest to hold cash within a shares Isa. However, not all providers of shares offer competitive rates to do this and you might be better by choosing to hold separate Isas for cash and shares.

Transferring between providers

You can open an Isa with a new provider at any time and move the money and investments you've accrued from your current provider to a new product without affecting your annual allowance. You might wish to do so if your current provider is paying a low rate or if you want to change the access you have to your money.

If you just want to move your money, maybe to take advantage of a better rate, but don't have any more money to contribute currently, you can move money from your old Isa across without making any new deposits. Transfers don't count as paying in so won't count towards your annual allowance.

If you don't want to move all of your money across, you are able to move chunks of savings from previous years' savings. However, if you have already started making deposits or investments in the current tax year and want to transfer that money, you must move all of it over. You can also open a new Isa at the same time as moving money over from your old Isa, provided you do not already have an active Isa for that year.

When transferring a stocks and shares Isa, you can decide either to sell the investments within your original Isa for cash or move the whole portfolio as is. If you transfer the cash to the new provider and repurchase those investments within the new wrapper you will incur dealing charges and the market might move while your money is in cash. To avoid that, you can ask for your investments to be moved over as they are, 'in specie', though most platforms will charge you to do this.

If you are selling all or some of your holdings first and transferring the cash value your new provider will arrange the transfer on your behalf and it should be completed within 30 working days of your initial request.

The main thing to remember is that you must never withdraw the money yourself in order to move it and always ask your providers to do it for you, otherwise you lose all the tax benefits of the Isa wrapper. Contact the new provider who will get in touch with your existing provider to arrange the transfer.

However, when it comes to transferring out in specie, most platforms and providers charge you for moving away. This takes the form of dealing fees (if you are selling and repurchasing your stocks), transfer out fees and could also include an account closure fee if you are fully leaving the account. These fees can be hefty. For example Hargreaves Lansdown charges £25 per line of stock to transfer out, which could add up to a large sum for multiple holdings. Tilney Bestinvest charges a £50 closure fee if you are moving cash and charges £25 per holding for an in specie transfer of stock.

Not all providers allow you to transfer old money in either, so check they do if you want to move over money you've accrued in previous tax years. Hefty penalties for transferring out might negate the benefits of a better platform fee, so consider whether or not it really is worth it.

Switching Isas from stocks and shares to cash

In the past, only switches from cash Isas into stocks and shares Isas were allowed. However from July 2014, any money held in stocks and shares Isas could be transferred into a cash Isa and vice versa.

Not all providers allow this, though, so be careful to check whether you can 'transfer in' and whether there is a charge for it. Again, you should not withdraw sums from your stocks and shares Isa in order to deposit it into the cash Isa yourself because any amount that you pay in with immediately count as a new payment against your limit and could lead you to exceed it.

What do DIY platforms allow you to do and what do they charge you for?

We took a look at some of the most popular fund platforms offering Isa wrappers to see which charged what for exiting, tranferring out and transferring in.

AJ Bell Youinvest, Barclays Stockbrokers, Tilney Bestinvest and The Share Centre will cover your costs of transfer up to £500, which could take the sting off the transfer out fees charged by some platforms.

Platforms and transfer fees

Source: Investors Chronicle, using provider websites, as at 4 June 2015

*Charges a £200 set-up fee

** If not a Barclays customer you need to open a current account first