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Transfer your Isa the right way

It could be worth transferring your Isa to another provider to get a better deal, but make sure you don't fall foul of the rules
April 12, 2017

Transferring your Individual Savings Accounts (Isa) to another provider is easy and could be worthwhile if you can find better rates elsewhere. Good reasons to transfer include finding a better cash Isa interest rate elsewhere, consolidating Isas or opening a new kind of Isa to make the most of government incentives, for example, the 25 per cent bonus on contributions up to £4,000 a year in the Lifetime Isa.

You can split your 2017-18 tax year Isa allowance of £20,000, whichever way you like, between stocks and shares, cash, Lifetime and Innovative Finance Isas. You can also fund a Help to Buy Isa, but only pay into either this or a cash Isa within the same tax year.

It is easy to move money between different kinds of Isas and transfers do not count as new payments, so will not eat into your annual Isa allowance.

The low interest rates of recent years mean it could be worth shopping around for a better cash Isa rate elsewhere, or moving your money into stocks and shares Isas. HM Revenue & Customs says cash Isa transfers, including Help to Buy and cash Lifetime Isa transfers, should take no longer than 15 working days. And stocks and shares and Innovative Finance Isa transfers should take up to 30 days.

If you are unhappy with how long a transfer takes, you can complain to the Financial Ombudsman Service at www.financial-ombudsman.org.uk or by telephone on 0800 023 4 567.

 

Know the rules

However, make sure you know exactly what money you can move and what you might be charged for.

Before you transfer, make sure the provider you are moving to accepts transfers in. While providers are required to let you leave, they do not have to accept transfers in.

Work out which money you are trying to move. You can transfer chunks of Isa savings from previous tax years, but you cannot partially transfer an Isa which you have already paid into in the current tax year. If you have put money into an Isa in the current tax year and want to move it, you will have to transfer the whole balance over.

The golden rule with Isa transfers is not to close your existing Isa or withdraw the cash yourself, as you will lose the tax-efficient benefits. And when you pay into a new one it will be counted as a new subscription and eat into your annual allowance. Instead, always ask the provider you are moving to, to do the transfer.

When moving between stocks and shares Isas, the key decision you need to make is whether to move your Isa pot as cash or move the whole portfolio as it is in stocks. If you transfer the pot as cash, all your investments will be liquidated and the proceeds paid to the new provider. You can then repurchase your investments or buy different ones.

With this option you run the risk of the market moving while you are not invested, and you will pay dealing fees when you buy funds and shares again. However, it is likely to be cheaper to exit your current provider this way, and might be a good idea if you want to refresh your Isa portfolio and buy different investments with your new provider.

If you want to stay invested, you can request to move your investments as they are, 'in specie,' and your money remains in the market throughout the process. But you are likely pay more in exit fees for this option as brokers generally charge per line of stock transferred out. For example, Hargreaves Lansdown charges customers £25 to transfer out in cash, but £25 per line of holding to transfer out as stock.

It is worth checking whether the provider you plan to move to will cover those fees. For example, Bestinvest and AJ Bell cover up to £500 of the exit fees levied by a new customer's former Isa provider.

 

What you can't do

When transfering Isas between providers there are some restrictions. You cannot transfer a Junior Isa (Jisa) into an adult stocks and shares or cash Isa. You can only transfer it to another Jisa, and the registered contact for the account will have to sign the forms unless the Jisa is in the name of someone aged between 16 and 18, in which case they are responsible for signing the transfer.

If you hold a fixed-term cash Isa account and transfer to another provider, you may be penalised for withdrawing your money early. This is also the case with the Lifetime Isa: you can move between Lifetime Isa providers, but if you try to withdraw the money and are not buying a house, or are under age 60, you will incur a penalty of 25 per cent of the value of the fund.

You may also not be able to transfer all the investments held within an Innovative Finance Isa to other providers due to the specialist nature of some of those investments. You will probably have to sell your crowd funding investments before transferring to a new provider, but can transfer any cash you are holding within an Innovative Finance Isa.