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Transferring your Individual Savings Accounts (Isa) to another provider is easy and could boost the funds in your tax-efficient account — but it has to be done right.
Savers can invest £20,000 in new Isa products each tax year — split between cash, stocks and shares, innovative investments, including peer-to-peer investments and the new Lifetime Isa — and they can transfer in and out of different Isas as often as they want.
“Transferring Isas has been far easier since rule changes in July 2014. Now you are free to move between different kinds of Isas — and back again — at any time,” says Sarah Coles, personal finance analyst at Hargreaves Lansdown. “However, you need to follow the right procedure to keep your money sheltered from tax.”
Here, FT Money sets out the 10 points to check before transferring your Isa.
1 Transfer, don’t withdraw
The difference between the words “withdraw” and “transfer” is crucial. If you close an Isa and then try to open a new one you face a potential double whammy — you give up the tax-free advantages on the funds you have built up and you may breach the annual Isa limit (£20,000 per person) in the current year when you try to reinvest the money.
“Transfers, on the other hand, don’t technically count as paying in,” says Tim Bennett, partner and head of education at Killik & Co, the wealth manager. “Subject to a provider’s rules, you can transfer funds built up in previous years in existing Isas and use the current year’s allowance to open a new one in the same tax year.”
2 Contact the provider you want to go to
Check whether they accept transfers in from other Isas. If they do, they will often arrange everything else on your behalf. Just make sure you have your account numbers handy so they know where to get your Isa from.
3 Check incentives
“When looking at a new provider to transfer your Isa to, it’s worth doing a bit of homework before you move your money,” says Maike Currie, investment director for personal investing at Fidelity International. She recommends checking whether there are any cashback offers at the new provider — some will incentivise you for moving money over to them.
4 Don’t overlook charges
Find out whether there are “hidden” charges such as exit fees that your current Isa provider might charge you to leave — or a loss of interest on cash Isas. If you are charged for leaving your current provider it is worth checking to see whether your new provider will reimburse these.
“While some investment platforms are keen to welcome you as a new client with no charges if you move your money to them, they then hit you with penalties if you have the temerity to transfer your money away,” warns Patrick Connolly, a chartered financial planner at Chase de Vere, an independent adviser.
Investors should also check ongoing prices and ad hoc trading fees as well as the headline offers. Are the new monthly charges lower over the long run — or just at the beginning?
5 Cash or in-specie?
Consider how you want to move your Isa investments. You can either arrange a cash transfer, where your old provider sells the shares and moves the cash, or an “in specie” transfer, where they transfer the shares or funds themselves. The “in specie” transfer has the advantage that you are not out of the market for any time, but you need to check whether your provider imposes additional charges. It might be possible to mitigate all costs of moving. For example, Bestinvest says it will cover transfer costs of up to £500.
6 Take care with Lifetime Isas
Funds transferred from the new Lifetime Isa to a different Isa product before the age of 60 are subject to a withdrawal penalty of 25 per cent.
7 Don’t forget a Help to Buy Isa counts as a cash Isa
If you want to open a Help to Buy Isa this tax year, but you already have a cash Isa, you can’t hold both (unless your provider offers them both within a cash Isa wrapper).
8 Watch out for cash transfers
With cash Isas, not all accounts will allow you to transfer in existing Isa balances accumulated during previous tax years, warns Andrew Hagger, personal finance expert from Moneycomms.co.uk.
“It’s also worth remembering that cash Isa balances are protected by the Financial Services Compensation scheme, but only up to a maximum of £85,000 per institution,” he says. “This is something to consider if you’re thinking of consolidating all your cash Isas into a single new account.”
9 Spousal benefits
If you are married or combining your finances with a partner, be aware of inheritance planning.
Andrew McCulloch, relationship manager at Seven Investment Management, says: “If your spouse has an Isa and passes away, you can transfer the value at the time of their death to your Isa as a one-off contribution, thus retaining its tax efficiency.”
10 The all or nothing rule
Don’t forget that if you invest in an Isa in the current tax year and then want to transfer it, you must move all of it. Also, some providers don’t allow transfers, so it is crucial that you do not do anything until you’ve completed the transfer request form for the new provider.
Gordon Andrews, tax and financial planning expert at Old Mutual Wealth, says: “For example, some providers do not accept transfers of previous years’ allowances.”
These caveats aside, the transfer process should be straightforward in most cases and should normally take no longer than 15 working days for a cash Isa and 30 working days for a stocks and shares Isa.