Making Changes

October 7th, 2008

An Individual Savings Account (ISA) is well known as a tax efficient savings vehicle and because of this one of the conditions that must be met in order to benefit from the tax efficient status is that you must not have subscribed to another ISA of the same type in the same tax year.  This article looks at what you should do if you wish to switch your contributions from one provider to another part way through a tax year.

If you are making contributions into a cash (or stocks and shares) ISA with your current provider, but decide part way through a tax year that you would prefer to switch your ongoing contributions to a new ISA of the same type (for example, because another cash ISA has a better interest rate) you should never simply stop making contributions to the current ISA and continue them with the new one. This is because even though no more than one ISA of the same type has actually received any contributions at any one time, you would still be deemed to have had two ISA’s of the same type in the same tax year and, where this is the case, the payments into the second ISA would be invalid. The consequence of this is that there would be no entitlement to any tax relief on your investments held in the second ISA.

Unfortunately, this mistake if made cannot be corrected by simply closing the second ISA. Instead, you would need to call the ISA Helpline on 0845 604 1701 and explain the problem to them who should then be able to advise you on what action needs to be taken.

But does this mean that once you have paid money into an ISA you will always have to wait until the start of the next tax year before you can switch contributions to another ISA of the same type?
The answer to this question is in fact no; you can pay into more than one cash ISA (or more than one stocks and shares ISA) in the same tax year but only if the benefits are transferred from the first ISA to the second ISA before any contributions are made to the second ISA. In this case, the transfer need only relate to the contributions made in respect of the current tax year and the whole amount for the current tax year must be transferred.

It should be noted though that if the current ISA had also received contributions in earlier tax years, it is possible that your provider might not allow a partial transfer in respect of the current year subscriptions only. You would need to check this with your existing ISA provider, but if they won’t allow a partial transfer, the whole ISA fund would need to be transferred before commencing contributions with the new provider.

The levels and basis of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.  The value of your investment can go down as well as up and you may not get back the full amount invested.