Never cash in an ISA if you don’t want to lose your tax-free status

There is an alternative. Just transfer them.

15:07 25 August 2014

Perhaps you are confused by the new ISAs and how they work. Don’t worry. You are not alone. A lot of people who are unsure about the new regulations, seek to consult with advisors to find answers to their questions.

 

Yes, the new ISAs or NISAs allow users to hold a deposit of up to £15,000 in a cash ISA. Can this allowance be used up whichever way we want? Suppose John has 3 different ISAs- one each with 2 banks and 1 building society. John wants to know if he can top up each of his current ISAs with say £5,000 each to exhaust the total allowance.

 

To be precise, John can only invest in one cash ISA during a tax year. Splitting the current year’s allowance of £15,000 over 3 different ISAs is not possible. If one of these 3 ISAs belong to the current tax year, John can top it up following the terms and conditions laid by the provider. Or better, transfer it to a new ISA to preserve the tax free status.

 

What is the best thing John can do now?

 

It is advisable for John to research on the best buy ISAs for the current tax year. i.e. 2014-15. Pick one that offers the best rates for a cash NISA and deposit the entire sum of £15,000 into that new account. Most of the providers allow users to do so for a certain period. Be sure to check this. 

 

Remember that only one stocks and shares NISA and one cash NISA can be opened in any tax year. With regards to transferring old ISAs, here is something you might not have heard of. Money can be transferred from a stocks and shares account into a cash account and not just the other way around.