ISA Transfer Rules
The purpose of an ISA is to earn the highest tax-free return possible, so it stands to reason that customers should look to regularly move ISA funds into investment or savings accounts that earn the highest possible rate of return.
ISA rules have changed recently, so many people have been left confused by the guidelines for the different types of ISAs. However, you could end up losing much of your tax benefits as you are trying to obtain a better rate of return on your money.
To ensure ISA transfers are done correctly and according to guidelines established by the Financial Services Authority, there are a few key points to keep in mind.
Initialising a ISA Transfer
One of the most important rules to follow is: never make a withdrawal from an ISA to put those funds into a different ISA.
This type of transaction counts as a withdrawal rather than a transfer, and you lose your tax shelter benefits in the process.
To initiate a transfer, begin the process at the institution that will be receiving the funds. Once they get your signature on the appropriate paperwork, they can handle the transfer process with your current institution to ensure the funds get moved according to FCA guidelines.
Knowing how to properly transfer ISA funds is an important part of getting the full benefit from your account. With these guidelines in mind, you will ensure the best rate of return on your investment each year, without the worry of losing your tax shelter advantages.
Transferring an ISA has never been easier with some banks offering you interest from day one so you don’t have to worry about delays during the switching process. In case of any delays in your transfer, most branches offer some form of guarantee so that any interest you lose out on is returned.
While ISAs can be straight forward, there are some rules to follow and it’s useful to know before you get started:
What are the Rules?
- The rules on ISAs have been relaxed since April 2016 and you can now choose how you split your savings. Instead of choosing one ISA, you can split your allowance between stocks and shares, innovative finance as well as cash ISAs
- Some accounts have penalties if you withdraw early, particularly fixed rate accounts. Be careful to check your provider’s rules as you could leave with less than you invested if you close early
- You must use a transfer form if you want to transfer accounts. If you don’t follow the transfer procedure and simply withdraw the money yourself then you lose all tax benefits for that year
- Transferring your ISAs should take no more than 15 days although transferring from a cash ISA to a stocks and shares ISA can take longer
Know Your Account Type
There is typically no penalty for transferring from one ISA to another, but that rule is dependent on the type of account you open in the first place. If your cash ISA is tied to a specific term, you may be assessed a penalty if you withdraw funds before your term is over. Read the fine print of your account agreement carefully to ensure you know when you can transfer ISA funds without problem.