Things worth knowing about ISA transfers

Putting money aside into an ISA can be a tax-efficient way of saving or investing. But what happens if you want to move your funds across to potentially earn greater returns? Will this affect your £20,000 yearly allowance?

In this guide we’ll explain how you can use an ISA transfer to boost your savings and investments while retaining your tax-free allowance.

An ISA transfer allows you to move your funds from one ISA to another without losing your tax-free benefits. It’s not exclusively available for one ISA type, which means, for example, you can move your cash ISA pot to a stocks & shares ISA.

It’s essential to use an ISA transfer when moving your funds because, if you withdraw and reinvest your money, you’ll be using up some or all of your annual ISA allowance.

Consider this example. Over the last four years you’ve made regular use of your ISA allowance, and your savings now stand at £40,000. This money, however, is tied up in a stocks & shares ISA and now you want to spread your risk by investing in a cash ISA. You decide that you’d like to move £25,000 into a cash ISA, but if you withdraw the money and try to deposit it into your account your provider will reject the transaction. This is because it breaches your £20,000 annual limit.

So the best course of action would be to transfer this across from your stocks & shares ISA to your cash ISA so the entire £25,000 sum stays tax-free.

No, transferring an ISA doesn’t count as opening a new one.

This can add to the appeal of making an ISA transfer as you’re allowed to open more than one ISA each tax year but you can’t open more than one of each type.

For example, you can open one cash ISA and one stocks & shares ISA in the same tax year but you can’t open two different cash ISAs in the same period.

So, since transfers in don’t count as opening a new cash ISA, you can transfer your cash ISA to a new provider and still have the option of opening another cash ISA later that tax year.

This works the same across all ISA types, so you can transfer a cash ISA to a stocks and shares ISA and still open up another stocks and shares ISA later that year.

It’s worth remembering that you can partially or fully transfer your previous ISA allowances, but not from your current year’s ISA allowance. Currently, if you’d like to transfer your current year’s allowance you must transfer the entire balance, but this rule will be removed in April 2024 following the Chancellor's Autumn Statement on 22 November 2022.

Also, there’s no limit to the amount of ISA transfers you can make per year. So, if you notice potentially better returns elsewhere you won’t need to worry about transfer restrictions.

To transfer your ISA you’ll need to follow a careful set of instructions. These are detailed below:

Some providers don’t allow you to make transfers in from different ISA types, such as from a stocks and shares ISA to a cash ISA. This is where the Moneyfacts charts can be of use. If there is a particular ISA which is of interest to you, look for it on our charts and click “View Further Details”. From here you’ll be able to see if your chosen ISA will be able to accept transfers in from several different ISA types.

Once you’ve found out if your new ISA accepts transfers in, it’s time to work out if you’ll incur any charges.

Fixed-rate ISAs, for example, will likely incur a loss of interest penalty for transferring out. So you’ll need to determine if the new rate is worth the penalty.

For stocks & shares ISAs, it’s worth noting if you hold any mutual funds. If so, look for whether your investments are listed under Class A, B or C shares as this can determine the type of exit fees you’ll need to pay. 

Once both these checks are complete, and you’re confident that transferring your ISA is the right step for you, you’ll need to collect an ISA transfer form. This can be done by getting in touch with your new provider and asking them for the form. Submit the form to the new provider and they will take care of everything else.

This depends on your type of ISA. If you’re transferring between cash ISAs it should take no more than 15 days. Other types of transfers should take no more than 30 days.

If your current ISA transfer has exceeded these respective periods, the file a complaint with your provider. If you’re transferring cash ISAs you might be entitled to compensation for the loss of interest during the transfer.

If this is rejected, then get in touch with the Financial Service Ombudsman.