Individual Savings Accounts (ISAs) for managers: transferring an ISA
Guidance notes for ISA managers on transferring ISAs from 6 April 2016.
Investors can transfer their ISAs whenever they want. The right to do this must be included in the manager’s ISA terms and conditions. The terms of a transfer should be agreed between the investor and both ISA managers.
An investor can’t transfer an ISA by closing it and paying the proceeds into a new ISA with the new ISA manager. They can transfer their ISA by making a transfer application to the new manager. The application can be made by someone holding a mandate from the investor.
Transfers rights in relation to non-cash Innovative Finance ISA investments are available as set out in the terms and conditions of the account. There’s no restrictions on pre 6 April 2016 funds held in cash, and Stocks and Shares ISAs being transferred to Innovative Finance ISAs after 5 April 2016.
All of the tax benefits are preserved when an ISA is transferred.
Investments and/or cash transferred are not new subscriptions.
Subject to the ISA terms and conditions of both ISA managers, the old manager can transfer:
- the ISA investments, in which case the new manager must re-register the investments in accordance with their terms and conditions
or any combination of the two.
The investments must be transferred directly to the new ISA manager. If instead, they are transferred to the investor, this will be treated as a withdrawal.
Records must be kept of ISAs transferred out for 3 years after the date of transfer.
Amounts that can be transferred
An investor can transfer:
- all of the current year’s ISA subscriptions, investments bought with those subscriptions, and income arising on those investments
- some or all of the previous years’ ISA subscriptions, investments bought with those subscriptions, and income arising on those investments
For an Innovative Finance ISA this means that a transfer of the cash isn’t possible unless all the current year subscriptions are transferred, specifically by liquidating the peer to peer loans or transferring ‘in specie’.
Where current year subscriptions are transferred they must be:
- transferred in whole, including any related income
- treated for all ISA purposes as though they’d had been made to the receiving ISA manager
This means that the investor is regarded as never having subscribed to the original ISA. So subject to the annual subscription limits the investor may subscribe to another ISA of the type that has been transferred later in the current year,with the same or a different manager, without breaching the ‘one ISA of each type a tax year’ rule.
If the investor has requested that the current year account be transferred, and that account:
- can be identified, the whole of the current year account must be transferred
- can’t be identified, it may be regarded as cash and investments whose total value is anywhere between 2 limits
The two limits are:
- the total amount subscribed in the current year plus a reasonable apportionment of any income arising on that subscription - upper limit
- the total amount subscribed in the year less withdrawals in the year - lower limit, if the withdrawals exceed subscriptions the lower limit is nil
If the total value of the cash and other investments held in the ISA are less than the lower limit, then all the cash and investments count as current year.
Where an investor wants to transfer all or part of the prior year account, the manager should calculate the lower limit, and subtract that from the total value of the investments and cash in the ISA. Some or all of the remainder can be transferred as a prior years account.
If the total value of the cash and together investments held in the ISA is less than the lower limit, all investments and cash held must be treated as a current year account and there’s no prior years accounts to transfer.
Unless the ISA is being transferred into an existing ISA with the new ISA manager, investors must make a transfer application to the new ISA manager when requesting a transfer.
Ask the investor to complete both:
- a Transfer Authority Form, which the new ISA manager sends to the old ISA manager authorising them to transfer the ISA, or part of it, to the new ISA manager
- an ISA application form or transfer instruction
A transfer instruction should include the appropriate authorisation to hold the ISA investments and agreement to the manager’s ISA terms and conditions. But there’s no need to include the investor’s date of birth or National Insurance number, or any of the ISA declarations. This can be completed by someone holding a mandate for the ISA investor.
The ISA application form or transfer instruction can be made ‘not in writing’. However, it’s possible that the old ISA manager will require the Transfer Authority Form to be signed by the investor before he’ll agree to release the funds. This is something for manager to resolve. The ISA Regulations don’t do away with the requirement for a signature if one is required by the old manager’s terms and conditions.
The new manager already holds an ISA for the investor
If the investor is transferring the ISA into an existing ISA held by the new manager, a person holding a mandate to operate the account can request that the funds are moved into that account. This is because an application to open the account isn’t required. Subscriptions can be made following the transfer if the manager holds an application form that’s still valid.
The transfer requires a new account
If a new account needs to be set up and the investor wants to subscribe to the account, an application made by the investor or someone holding a registered Lasting Power of Attorney to open the account is needed.
Transferring ISA savings without making further subscriptions
If the investor is transferring ISA savings and doesn’t want to make any further subscriptions to the new account, the transfer can be processed by a person holding a mandate to operate the account. But the new ISA manager can’t accept subscriptions without an application completed by the investor or a person holding a registered Lasting Power of Attorney.
A transfer application isn’t required where an existing ISA investment is switched from one product to another. This is what happens on the maturity and ‘roll-over’ of a fixed-term product. The existing ISA continues, with either the same or a new account number. However an ISA application form must be obtained where all of the following apply:
- the investor is eligible to subscribe to the ISA after the transfer - the residence condition is satisfied
- the investor intends to subscribe to the ISA after the transfer
- the existing application form is no longer valid
But a transfer application is required where one type of ISA is transferred to another type, for example where a Stocks and Shares ISA is transferred to a Cash ISA and the investor intends to subscribe following the transfer.
Cash ISA transfers
Cash ISA to Cash ISA transfers must take place within 15 business days of the transfer instruction being received by the new ISA manager, unless the investor stipulates that the 15 days starts on a later date. This 15 days is broken down as follows, the:
- new ISA manager has 5 business days to forward the instruction to the old ISA manager
- old ISA manager has 5 business days in which to send the funds and a Transfer History Form to the new ISA manager
- new ISA manager has 3 business days to apply the funds to the new ISA
The other 2 days are to allow for time taken for first class post between managers.
This timetable doesn’t apply to Cash ISA to Stocks and Shares ISA transfers or to Stocks and Shares ISA to Cash ISA transfers. Managers should complete such transfers in accordance with their ISA terms and conditions.
Guidance and specimen transfer authority have been produced by the Tax Incentivised Savings Association on best practice for:
While HM Revenue and Customs (HMRC) recommends that managers adopt these procedures, they are recommendations only and are not prescriptive.
If the old ISA is a notice account or a fixed-term product, the investor may suffer an exit penalty or interest penalty if the funds and Transfer History Form are sent to the new manager within 5 business days. If the old manager contacts the investor and receives a revised instruction to transfer the ISA once the notice period has expired, or the product has matured, this will be treated as new transfer instruction that restarts the timetable once the notice period has expired, or the product has matured.
Transfer history forms
The old ISA manager must give the new ISA manager a Transfer History Form, which is a notice in writing that contains information about the ISA being transferred. HMRC has produced 2 model forms, one for Cash ISAs and one for Stocks and Shares ISAs. The forms can be sent electronically but they must be sent to the new ISA manager within 30 calendar days of the date of the transfer.
ISA managers can use their own transfer history forms but they must contain the same information as the HMRC model forms.
Date of transfer
Both ISA managers must agree a common transfer date. Unless otherwise agreed, this will be the date included in the ‘transfer acceptance’ section of the ISA Transfer Authority Form if the transfer is a Cash ISA.
The transfer date establishes:
- the date from which the new ISA manager can accept subscriptions
- which ISA manager is responsible for including details of the transferred ISA in its annual returns
The new ISA manager can accept subscriptions from the date of transfer, provided they hold a valid ISA application.
Where an ISA transfer straddles the end of a tax year, the ISA is included in the:
- new manager’s annual returns if the transfer date is 5 April or earlier
- old manager’s annual returns if the transfer date is 6 April or later
Income received by the old manager after the date of transfer
Any income received by the old ISA manager after the date of transfer should be sent to the new ISA manager unless either of the following apply:
- the old manager has been instructed to pay income received to the investor
- the income received is less than the minimum the new manager is prepared to accept
A bulk transfer takes place where either of the following applies:
- 2 managers agree to transfer 2 or more accounts between them without the agreement of the account investors; for example where an ISA manager has decided to rationalise or reorganise his ISA book by selling some or all of it to another manager
- the transfer takes place under an insurance business transfer scheme or a banking business transfer scheme under Part 7 of the Financial Services & Markets Act 2000 (FSMA)
Before making a bulk transfer, the manager must notify HMRC and the investors whose accounts are being transferred. The notice must:
- specify the first day on which accounts will be transferred under the bulk transfer
- be given at least 30 days before this date
- provide the name and address of the manager who will receive the accounts
In addition, the notice to investors must:
- identify the account being transferred
- advise that the investor can arrange a transfer to a manager of their choice if they supply instructions by a certain date
- specify what the date is for receiving those instructions
Where the manager ceases to offer ISAs after the bulk transfer the manager must make sure that the final returns are made so that HMRC records can be closed.
When making a bulk transfer, the old manager doesn’t need to complete separate transfer history forms for each ISA being transferred. The old manager may give the new manager a schedule that contains the information that would normally be entered on the transfer history forms.
Where managers adopt this approach they must also send a covering notice to the new ISA manager. This notice should identify the ISAs being transferred by referring to the accompanying schedule.
If the transfer takes place to an existing account held with the new manager, the investor can make further subscriptions to the account if the application form held by the new manager for that account is still ‘valid’.
If the transfer is made to a new account, the new ISA manager can only accept subscriptions to that account if an application form has been given to the new manager and that application is ‘valid’.
Where subscriptions were being made to the old manager by direct debit, the new manager can’t collect payments under that direct debit until he holds a valid application form. They can accept the money on a provisional basis, but if a completed application form isn’t received within 30 days the manager must void the subscription and remove the investments purchased with it from the ISA. The manager could place the money in a suspense account until a fully completed application is received.
A ‘group transfer of accounts’ is a bulk transfer that takes place between members of a 75% group of companies - specifically where one of the companies is a 75% subsidiary of the other or both are 75% subsidiaries of a third company.
Following a group transfer or a bulk transfer of accounts under Part 7 of FSMA, the new manager can accept subscriptions to the account if:
- the most recent application held by the old manager is available to the new manager
- that application is still ‘valid’
The application is available to the new manager if it’s been passed to the new manager or if the new manager could require it to be made available to them. The old manager will need to confirm to the new manager that there has not been a gap year where no subscriptions have been made.
An intra-group transfer can include cases where the manager has accepted an application, usually online, but is still awaiting the first subscription. If the application is available and still valid, the new manager doesn’t need to obtain a fresh one.
Subscribing to the ISA after the transfer
If the investor intends to subscribe to the ISA after the transfer the new ISA manager must obtain an ISA application form unless he already holds a valid application form. The application form is valid for subscriptions made in:
- the year of transfer
- each successive year following the year of transfer, in which the applicant subscribes to the ISA
The application form ceases to be valid at the end of a tax year in which the investor fails to make a subscription.
Reporting subscriptions made in the year of transfer
Where current year subscriptions are transferred:
- the old ISA manager must exclude the subscriptions from the annual return of information and enter ‘X’ in the type of ISA box
- the new ISA manager must include the subscriptions in the annual return of information and enter ‘A’ or ‘B’ as appropriate in the type of ISA box
Claims for payment of tax in respect of income paid after the transfer date
Claims for payment of tax in respect of income with a payment date on or after the date of transfer may not normally be made by the old manager.
However, provided that the old and new managers agree, the old manager may claim payment of tax in respect of income with a payment date on or after the date of transfer for a period of up to 6 months after the date of transfer.
The old manager should send the income received (and the tax claimed) to the investor if either of the following apply:
- their instructions were to pay any income away to the investor
- the amount is less than the minimum the new manager is prepared to accept
Otherwise, the income, and tax reclaimed, should be forwarded to the new manager.
The new manager can make a claim provided the old manager has not made, and doesn’t intend to make, a claim in respect of income received by them by either:
- up to and including the date of transfer
- from the date of transfer
The old manager should forward the relevant tax voucher(s), to the new manager to enable them to do so.
Cancellation of a transfer
ISAs attract a 14 day cancellation rights unless the ISA includes a life policy in which case the period is extended to 30 days. Some providers voluntarily offer a 30 day period for Stocks and Shares ISAs. However:
- for distance contracts, COBS 15 Annex 1 1.10R(1) removes the cancellation rights because price will depend on fluctuations in financial markets outside the firm’s control
- for non-distance contracts there is an exception whereby a 7 day pre-contractual right to withdraw is provided instead
Impact on ISA transfers
For distance contracts, cancellation rights or withdrawal rights will apply only where these are included in the product terms and conditions.
For non-distance contracts, there are 14/30-day cancellation rights unless the new ISA manager offers a 7-day withdrawal period instead.
New manager offers 7-day withdrawal period
If the new ISA manager offers a 7-day withdrawal period, the transfer request should not be forwarded to the old ISA manager until the withdrawal period has expired. The investor has 7 days to reconsider their decision, this is the withdrawal period. During the withdrawal period, if the investor tells the new manager that they no longer wish to proceed with the transfer, the new manager shouldn’t progress with the transfer any further. The funds will stay in the original ISA. Before 1 July 2014 this is particularly important where the transfer is from a Cash ISA to a Stocks and Shares ISA which can’t be reversed until after that date.
New manager doesn’t offer 7-day withdrawal period
If the new manager doesn’t offer a 7-day withdrawal period, there’s a 14/30 day cancellation right. The ISA would be transferred to the new manager before the 14/30 day cancellation period began. If the investor decides to cancel, it’s the purchase of the investment in the new ISA that is cancelled, not the transfer itself. The investor has an ISA with the new ISA manager. The investor can choose to:
- invest the money in a different investment offered by the new ISA manager
- close the ISA
- transfer the ISA back to the old ISA manager - but, before 1 July 2014, not if the original transfer was a Cash ISA to Stocks and Shares ISA transfer as before that date a Stocks and Shares ISA can’t be transferred to a Cash ISA
- transfer the ISA to another ISA manager
Transfers in that can’t be accepted by the new manager
Not all transfers in can be accepted by the new ISA manager. This is because when the Transfer History Form and proceeds is received from the old manager:
- the new manager realises that the amount of current year subscriptions being transferred exceed the annual subscription limit when aggregated with the amount already subscribed with them in the current year
- it arrives after the date by which all transfer proceeds must be received for a structured product, or similar, on sale only for a limited time
- the new manager realises that the terms and conditions of the ISA product in question do not allow transfers in
In these circumstances the new manager should proceed as follows:
- if the amount of current year subscriptions being transferred, when aggregated with the amount already subscribed to the new manager in the current year, exceed the annual subscription limit the new manager has a choice they may:
- remove the excess current year subscriptions, and pay them to the investor and pay the balance into the ISA
- need to contact the old manager to determine the value if the investor claims that the value of the excess subscription is less than the amount originally subscribed - if the value is less than the amount subscribed only the value needs to be removed
- return the current year subscriptions to the old manager with a written explanation why they’re unable to accept them
Funds that may have been returned to the old manager could leave the transfer in ‘limbo’, this can happen when the old manager has followed the instructions to transfer out but the new manager hasn’t processed the transfer in.
Where the old manager is willing and is able to do so, they should reinstate the ISA to put the investor back into the position he would have been in had the transfer out never happened.
If the old ISA can’t be reinstated, for example, because the old product is a fixed-rate product that can’t be re-opened once it has been closed, the old manager may offer the investor the opportunity to place the returned/rejected transfer proceeds into another of his ISA products. The old manager would need to treat this as an internal transfer between ISA products otherwise the sum would have to be regarded as an ISA subscription and subject to the annual subscription limits.
If the old manager isn’t prepared to reinstate the ISA as there’s no obligation to do so, they should allow the investor to transfer the ISA to another provider so the ISA status of the savings isn’t lost.
Cash withdrawn in error as a result of incorrect transfer advice by an ISA manager
Cash may be withdrawn from an ISA in error as a result of incorrect advice from either the old ISA manager or the new ISA manager, in relation to a transfer application. HMRC may allow reinstatement if there’s clear evidence of the investor’s intention to transfer the ISA and the incorrect advice given by the ISA manager.
Flexible ISA transfers
Where a flexible ISA is transferred, the old manager must provide the new manager with the:
- ‘net’ subscriptions in the current year, including:
- the total subscriptions in the year, disregarding any additional permitted subscriptions
- defaulted subscriptions
- Help to Buy ISA reinstatement subscriptions
- less any amounts withdrawn
- date the first subscription in the current year that counts towards the subscription limit but not the date of the first subscription that is not a replacement of amounts previously withdrawn in the year
Where withdrawals equal or exceed the amounts subscribed nil figure should be provided
Where the net current year subscriptions are nil, and managers are unable to override the Bacs (Bankers Automated Clearing System) default date of first subscription of 6 April, the transfer should proceed using the default date of 6 April.
The Bacs system has a default date of first subscription of 6 April where current year subscriptions are £nil. Where managers systems are unable to override the default date, transfers made in 2016 to 2017 should use the 6 April default date. However they must make the necessary systems changes for later years.
Where a manager receives a Bacs transfer in 2016 to 2017 showing a date of first subscription of 6 April and current year subscriptions of nil, the manager shouldn’t capture or report the 6 April date of first subscription. For later years, the date should be captured and reported.