Bitterwallet's Dos and Don’ts to moving money in and out of ISAs

8 June 2011

moneyWe have previously told you lot about ISAs being A Good Thing, after all, anything that involves you keeping all your money and the taxman having none of it couldn’t be anything else.

However, because an ISA is a tax-free Government Scheme, there are Rules. And not the type that are meant to be broken. Breaking ISA rules means it will lose its lovely tax-free status and all your interest or investment gain will be subject to tax as usual. Which is not a good thing. So we thought we would furnish you lot with a quick breakdown of what you need to know about investing in, and withdrawing cash from an ISA. Cause we’re nice like that.

1. How much can I invest in an ISA

If you are lucky enough to have spare cash coming out of your ears, you need to be aware that there are limits people. Annual limits on investment that is.  For 2011/12 (the tax year that we are in now) you can invest up to £10,680 a year (or £890 a month) in a stocks and shares ISA, or half those amounts (£5,340 a year/£445 a month) into a cash ISA. There is nothing stopping you having both a cash and stocks and shares ISA, but the total you can invest remains the same at £10,680.

This limit will increase every year with inflation. Looks like it might be quite a bit more next year then.

2. Can I take my money out?

Yes. It’s your money. Unless the ISA product you have purchased ties you in for any length of time, you can take your money out willy nilly, if, for example you needed to go to Thailand or something. Even if you are in a fixed duration account you can still get your money, you will just face a loss of interest penalty or the like.

However (and this is a big HOWEVER), withdrawing money does not then replenish your annual limits on investment. If you invest £10,000 and then withdraw £8,000 of it, you still only have £680 limit left. That £8,000 can never again become tax-free savings (well, not in this tax year anyway) so make sure you spend it on something really good. Like bacon.

3. Can I transfer my ISA to another bank/building society/ISA provider?

Yes, but you have to do it properly. If you just take it out and try to reinvest it, you will find yourself in the same situation as above. You have to formally request to transfer your ISA and the banks/providers will do it between themselves within strict time limits from the date of request. Again, NEVER EVER remove the cash yourself.

In many cases, with cash ISAs, it will pay you to transfer your ISA, as i the cash has been invested for any length of time, you may find your interest rate is, well, not very interesting. We have already told you this.

4. Can my small children invest in an ISA?

No. Well, not yet. Currently you need a National Insurance Number to open an ISA account, which means you need to be at least age 16. However, as the Government scrapped the highly popular and lucrative* tax-free saving vehicle known as the Child Trust Fund (CTF), they decided to invent Junior ISAs instead.

Junior ISAs are definitely on the way- they were included in this year’s Budget- but the details have not been ironed out. It is expected they will work in a similar way to cash ISAs for grown ups.

5. What does ISA stand for?

Individual Savings Account. Numpty.

*this may be sarcasm.

TOPICS:   Tax   Banking


  • jiva
    I tried to transfer half my cash isa over to a shares isa last year. Barclays moved the lot, lost the cash and only with a lot of badgering, finally got it back. They suggested rather too many times that I should sort it out myself. Finally after 3 months of being missled, miss-sold, and general bad service they got my money back the right way so I didn't loose out. I was not happy, even the £100 sorry we messed up still winds me up because i probably spent 3 times that in my personal time sorting it out. Watchout moving money about they can and will cock it right up.
  • Tony H.
    If I have £5340 in an ISA for the entire tax year and get the (measly) 3% at the end of the year, can I then withdraw that on the 1st of April and open a new ISA myself or does that break rule number 3? Does the 3% drop down to a less attractive rate at the end of the first year?
  • Money b.
    @Tony H If you leave it in (or transfer it according to Sam's rules) you benefit from tax free interest in the second year on the money from the first year's interest (this is compound interest). If you take it out on 1st April you start from zero again with regards to compound interest. As for the 3% question, well that depends on the terms of the specific deal you go for.
  • Fatty B.
    Can anyone explain what the advantage of a childrens/junior ISA is? Dont kids pay no tax anyway?

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