Busting Common Misconceptions About ISA Transfers
Investors may have valid reasons for not consolidating or transferring their ISA investments, but fear should not be one of them. Misconceptions about ISA transfers are common and they hinder investors from consolidating their investments into better opportunities.
To ensure a well-informed decision, it is advisable to seek the guidance of an independent financial adviser.
It’s complicated and too long
Initially, all you need to do is fill out a form on your preferred platform destination. Once the provider has received the form, they will do all the work for you. If there is something you need to do such as sign a document or show proof of identity, the provider will get back in touch.
How long your transfer will take depends on the type of ISA you have and transferring into.
It’ll cost a lot to transfer
Generally, your new provider won’t charge you anything to transfer your ISA or other investments. However, many providers will have penalties or withdrawal fees on your account if and when you choose to move your investment. Some may even require an advance warning.
Before transferring your ISA, be sure to check with your providers in advance to remove any sudden hidden charges.
You can’t switch to a different ISA type
There are four types of adult ISAs you can invest in every tax year. However, as Barclays has pointed one, you can split your allowance across all four or just one type. For example, you can choose to swap your Cash ISA to an Innovative Finance ISA or to a Stocks & Shares ISA.
However, swapping may come with limitations, so make sure you check first. This example includes the Lifetime ISA, where you can only swap a maximum of £4000 each tax year. Be sure to check which ISA your preferred provider accepts.
Transferring will impact your ISA Allowance
In the 2023/24 tax year, you can invest up to £20,000 in any of the four types of ISAs (Lifetime ISA has a limitation of £4000) without paying tax on gains**. Any investments made prior to the current tax year will not be included as part of the allowance.
For example, if you choose to transfer your Cash ISA worth £10,000 opened in 2020 to a Lendwise IFISA, your current ISA allowance will remain untouched. This means your IFISA will be worth £10,000 and you may still invest up to £20,000 allowance as well. However, if you opened an IFISA with a different provider in the same tax year, your account will incur penalties from the HMRC as you are only allowed to open/invest one type of ISA every tax year.
Unlike the other types of ISAs, you can only transfer up to £4000 to a Lifetime ISA. The limit includes transfers and investments. If you think you made a mistake, you should contact HMRC and your new provider as soon as possible.
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**The tax treatment of interest and reliefs on defaults may be subject to change and tax treatment will depend on your individual circumstances.
