From rebalancing your portfolio by transferring to a different type of ISA through to finding a more attractive rate with another provider, ISA transfers can serve multiple purposes, and they are crucial in helping investors to maximise returns and make the most of their ISA allowance.
An often under-utilised but incredibly advantageous feature, there are five core rules surrounding ISA transfers that investors must be aware of in order to ensure they are able to reap the benefits.
The official ISA transfer process must be followed
Whilst complex from a provider’s perspective, the process of transferring an ISA often requires little input from the investor – and one of the most important ISA transfer rules is that the official process is followed.
A major benefit of ISA transfers, when the process is completed correctly, funds transferred do not contribute to the current annual ISA allowance. This is because they never leave the ISA tax wrapper, and as a result of this, ISA transfers allow investors to invest what could be considerably more than the £20,000 allowance each tax year.
But for this to be the case, funds should never be withdrawn from an ISA when looking to make a transfer. As soon as they are, they lose their tax-free status, and no matter how soon afterwards the funds are subscribed to another ISA, the amount will be deducted from the current ISA allowance.
An investor holding a Stocks and Shares ISA from 2020/21 who would like to transfer £10,000 to an Innovative Finance ISA (IFISA) in 2021/22 whilst also retaining their current £20,000 allowance could do so by initiating an ISA transfer with their IFISA provider.
On the other hand, if the investor were to withdraw the £10,000 and manually resubscribe it to the IFISA, they would be left with just £10,000 of their ISA allowance for 2021/22.
Therefore, in order to make the most of your annual ISA allowance, it’s imperative you follow the official ISA transfer process – and be aware, this process can change on a provider-to-provider basis. You must contact your provider for detailed instructions.
You can transfer as much as you wish
ISA transfers are not governed by the annual ISA allowance, this means there is no annual – or lifetime – limit on the amount that can be transferred. Whether looking to transfer £100,000 or £5,000, the rule here is that, technically, there is no rule.
This is a key benefit of ISA transfers – alongside the fact that they do not contribute towards the annual ISA allowance – that results in the flexible movement of ISA funds, providing opportunities to change the weighting of your portfolio whenever needed without being limited to an amount or affecting your current ISA allowance.
If you want to transfer money invested into an ISA during the current tax year, you must transfer all of it
Though you are able to choose whether to transfer all or just part of an ISA that was subscribed to in a previous year (more on that later), when transferring funds subscribed in the current tax year, you must transfer all of it.
For example, an investor who subscribed £20,000 to a Stocks and Shares ISA on or after 6th April 2020 – when the allowance reset – but decided later in the financial year to rebalance their portfolio by transferring to an IFISA would be required to transfer the whole £20,000.
If you want to transfer money invested into an ISA in a previous year, you can choose to transfer all or only part of it
As mentioned above, when transferring funds subscribed to an ISA in a previous tax year, investors have the option to transfer the ISA in full or just part of it.
Using the previous example of an investor who wanted to transfer from a Stocks and Shares ISA – to which they subscribed £20,000 – to an IFISA, if the initial funds were subscribed in 2020/21 and the investor waited until 2021/22 to transfer, they could choose to transfer any amount they wish, and would not be required to transfer the £20,000 in full unless they wanted to do so.
And remember: this transfer would not deduct from the investor’s current annual ISA allowance, so on top of the amount transferred, they would also have their £20,000 2021/22 allowance left to subscribe.
You can transfer ISAs as many times as you like
Just as there is no limit on the amount of capital that can be transferred from one ISA to another, there is also no limit on the number of times an ISA can be transferred, or on the number of times one particular investor can transfer ISAs.
An investor could choose to transfer funds to a new ISA each tax year, or transfer from a Cash ISA to a Lifetime ISA, and a Stocks and Shares ISA to an IFISA in the same tax year. The possibilities are numerous.
This is again extremely beneficial in the event of changing investment goals or market circumstances, allowing endless opportunities to transfer to a more suitable ISA – whether that is the same kind of ISA with another provider, or a different ISA altogether.
Understanding the ISA transfer rules
With opportunities to allow investors to alter the weighting of their personal portfolios and potentially subscribe more to an ISA than the annual ISA allowance, the benefits of an ISA transfer are clear.
And with a straightforward ISA transfer process for investors, as long as the ISA transfer rules are understood and followed each time, the potential for maximising returns and minimising risk through transferring an ISA – or several ISAs – is substantial.