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An Isa transfer allows people to transfer their money from one provider to another without losing the tax-free benefits.
Isas allow you to save or invest up to £20,000 in savings or shares each tax year, while protecting interest, dividends or capital gains from tax.
Moving old Isas to a new provider does not count towards this allowance as the £20,000 limit only applies to money deposited from outside an Isa.
The Tax Protector: You can think of an Isa as a shield that protects your savings or investments up to £20,000 from tax
There are several reasons why someone might want to transfer their Isa to a new provider.
It could be related to interest rates, fees, level of customer service, or simply switching from cash to stocks or vice versa.
When it comes to transferring from one Isa money provider to another, this will most likely be done to ensure a better interest rate.
Cash Isa rates vary widely. For example, many of the big banks pay little more than 1 cent on their easy-to-access Isa cash deals, while some of the best deals offered by challenger banks and building societies pay more than 5 percent.
Moving a stocks and shares Isa to a new provider can make sense for a variety of reasons, from attempting to reduce platform or management costs to attempting to improve performance.
What are the rules when transferring an Isa?
As things stand, you can only open one of each Isa type in any given tax year, although this will change from April 6, 2024.
This means, for example, that it is currently not possible to open two investment ISAs in a tax year, but you can open one investment ISA and one cash ISA.
Transferring an Isa does not count as opening a new one. So you can transfer an Isa to a new provider and still have the option of opening another Isa later that tax year.
You can transfer all or part of your Isa allowances from previous years. However, if you want to transfer your current year’s allowance, you must transfer the entire balance. This will also change from April 6, 2024.
Under current rules, Isa providers must allow transfers, but there is no obligation to accept transfers. Therefore, not all Isa providers do this – so it’s always worth checking before you switch.
How transferring an Isa works
Transferring an Isa is a fairly simple process. First open an Isa account with a new provider. Secondly, let the new provider know that you want to transfer an existing Isa into it.
The new provider will send you an Isa transfer form online or by post. Once completed and returned, your new provider can complete the transfer for you electronically or by mail.
The process should take no more than 15 days for cash Isas and 30 days for stocks and shares Isas.
When Isas are transferred, they come with a transfer history form showing how much of the money comes from the current year’s plan and how much from previous years.
Be careful when withdrawing money from an Isa
Previously, if you took money out of an Isa, you couldn’t put that money back without it counting towards your current annual subscription to the Isa.
Now the rules allow you to withdraw and replace money within the same tax year – whether from an old Isa or from your current tax year’s Isa, without using your deductions. However, this benefit is only available on a ‘flexible Isa’.
And not all Isa accounts – whether cash or shares – fall under this description. So check with your Isa provider before taking any action.
Get a better deal: Savers holding cash Isas with some of the biggest high street banks are more likely to be ripped off with below market interest rates
How do I choose the right Isa to switch to?
This is very easy for those who choose to switch to a cash Isa. Visit This is Money’s best buy tables for cash Isa rates for the best deals.
Our tables are independent and providers do not have to pay to appear, which is usually the case with large comparison sites.
All banks and building societies are registered with the Financial Services Authority and affiliated to the Financial Services Compensation Scheme, either directly (where up to £85,000 is protected) or through the Passport Scheme (where the compensation limit depends on the bank’s home country). In Europe it is €100,000).
When transferring to a new cash Isa provider, always bear in mind that not all Isa providers accept transfers.
Finding a better deal on your stocks and shares Isa usually means finding a provider that charges you fewer fees or offers greater investment choice.
DIY investment platforms are a simple and cost-effective way to buy, sell and hold investments and typically allow customers to do this within an Isa wrapper.
When considering the right choice, it is important to look at the service it provides, along with the administration and transaction fees, plus any other additional costs.
We’ve written a comprehensive guide to the best and cheapest DIY investment platforms that can help.
Do you have to transfer everything at once?
If your existing Isa was opened in the current tax year, you will need to transfer it in its entirety to the new provider and close the old account.
However, if you are transferring Isa funds paid in a previous tax year, you can transfer as much as you like without affecting your current annual Isa allowance.
Other Isa transfer rules worth knowing
Transfer money to cash Isas
If you switch from one Isa lender to another during a tax year, your annual allowance will not be affected as long as you follow the correct transfer process.
Please note that some Isa lenders charge a penalty on departure. This is particularly the case with fixed-term agreements that have yet to be completed.
It’s always worth checking what these costs are so you can consider whether the transfer is cost-effective.
Transferring stocks and shares to stocks and shares Isas
Transferring a stocks and shares Isa to a new provider will usually take longer than a cash Isa transfer. How long depends on the method you use.
There are two ways to transfer stocks and shares Isa. You can opt for a so-called ‘in specie’ transfer, or you can sell the investments and transfer them in cash.
With the transfer ‘in specie’, each share or unit is transferred directly to the new provider.
If you are happy with all your current investments, this makes sense as you will remain invested throughout the process.
It is important to ask your current provider whether there are any costs involved.
Transferring an Isa does not count as opening a new one. So you can transfer an Isa to a new provider and still have the option to open another Isa later that tax year
It’s also worth checking with the new provider that they can accept all the investments you want to switch. Some offer less choice than others.
The transfer ‘in specie’ usually takes between four and six weeks. However, in some cases it may take longer.
The other option is to sell the investments that make up your Isa portfolio and transfer them as cash to the new provider.
Isa protection remains in place throughout the entire process and the new provider will reinvest your money entirely according to your wishes.
This option risks missing out on stock market gains in the meantime, but if you’re looking for a fresh start, it could make sense.
This will normally take less time than the ‘in-specie’ transfer, although there are no guarantees.
What about stocks and shares to cash in?
In the past it wasn’t possible to transfer money from a stocks and shares Isa to a cash Isa.
Savers could only transfer money in the other direction: from cash to shares. But the rules have changed and it’s easy to have it either way.
Just like transferring money from one Isa to another, you’ll still need to ask the new provider to make the transfer for you.
It may not last longer than 30 calendar days. But don’t be tempted to take the money out and transfer it yourself.
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