Individual Savings Accounts (ISAs) are a tax-efficient way to save and invest. Your ISA allowance means you can save up to £20,000 each year and you won't need to pay tax on any interest or gains you make as a result. ISAs come in many forms with some of the most popular ones being Stocks and Shares ISAs, Cash ISAs, and Lifetime ISAs.
Under new ISA rules, as of April 2024, you are now able to open and contribute to multiple ISAs of the same type. This means you could open and contribute to two Stocks and Shares ISAs in the same tax year if you wanted to. Lifetime ISAs, however, are an exception to the rule.
Many people choose to transfer their Cash ISAs to make use of better interest rates. Additionally, in the case of Stocks and Shares ISAs, people may choose to transfer to an alternative provider to take advantage of lower fees or a wider choice of investments. But given the rules around ISAs, there is some confusion about whether transferring an ISA to a new provider is the same as opening an ISA with a new provider.
Does transferring an ISA mean you've opened a new one?
Simply put, transferring an ISA to a new provider within the same tax year does not count as opening a new ISA. So, for example, if you opened an ISA in this tax year and then found a better deal elsewhere, you could transfer your existing funds into the new ISA and continue to contribute to the new ISA. Transferring your ISA funds to a new ISA does not count towards your £20,000 ISA allowance either.
However, if you opened an ISA during the current tax year and decided to transfer it, then you'd need to transfer the whole amount. You can then add more funds to the new ISA as long as you're within your £20,000 ISA allowance.
If, however, you had £20,000 in an ISA from a previous tax year, and then you moved those funds to a new ISA in the new tax year, you could still contribute an additional £20,000 to your new ISA. You could choose to transfer all your funds to the new ISA, or a smaller amount. It's entirely up to you.
So there's a slight nuance there; if you opened an ISA in the previous tax year, you can transfer it partially, but if you opened the ISA in the current tax year, then you must transfer the full amount to your new ISA provider and then you can continue to make deposits.
Does transferring a LISA mean you can't buy a house for another 12 months?
Lifetime ISAs (LISAs) are a great way to save for your first home or retirement. You can contribute up to £4,000 a year to your LISA and the government adds 25% to all your contributions. But, there are certain caveats with this type of ISA. For example, you can't use the funds in a LISA to purchase your first home if your LISA has been open for less than 12 months. If you do, you'll incur a 25% withdrawal charge that would remove the government's bonus and may even eat into your own savings.
That being said, you may have had your LISA open for a year when you find a better deal with a different provider. Some people are concerned that opting to transfer their LISA funds could "reset the clock" and mean that they'd need to wait another 12 months to buy their first property. However, this isn't the case. Transferring the funds to a new LISA doesn't count as starting from scratch as you're essentially only changing your LISA provider, rather than opening a brand new LISA account. You can find out more about transferring a LISA here.
How to transfer an ISA
Transferring an ISA is as easy as contacting your new provider and filling out an ISA transfer form. Once this is done, your new provider will get in touch with your old provider to complete the transfer. Typically, a Cash ISA transfer shouldn't take more than 15 days, while a Stocks and Shares ISA should take around 30 days.
It's worth keeping in mind that some ISA providers don't allow transfers in, and as such you'd need to double-check your new provider is happy to accept your transfer. We dig into this topic in a lot more detail in our ISA transfer rules explained article.
And if you're thinking about transferring but aren't sure about which provider to choose, then it might be worth exploring our ISA Best Buy tables which are updated weekly with the best deals on the market.