Transfer a stocks and shares ISA – what you need to know

Font size

0
0
0
0

Under the ISA (individual savings account) rules, you can transfer a stocks and shares ISA to a different provider or turn it into a cash ISA. How do you transfer a stocks and shares ISA and how long should it take?

When to transfer a stocks and shares ISA

There are several reasons why you might want to transfer a stocks and shares ISA to another stocks and shares ISA provider. Here are three of the most common reasons:

  • To save money on fees and charges.
  • To get access to more investment funds or specific funds that your provider doesn’t offer. If you want to invest in a sustainable or ethical way, for example, your current stocks and shares ISA provider may not have any or many options.
  • For better service/online or mobile access. If your current provider has a particularly clunky website or app, you may want to switch to one that’s easier to use. Make sure you won’t end up paying more in fees and charges if you switch, though.
  • To get a better return. There’s no guarantee that your new provider will produce a better return, but if your existing stocks and shares ISA provider has been producing lousy returns, you may be happy to take that chance.

How to transfer a stocks and shares ISA to another stocks and shares provider

There are two different ways that you can transfer a stocks and shares ISA to another stocks and shares ISA provider. I’m including investment platforms in the category of ‘provider’. One method involves selling your investments and the other doesn’t.

  • Cash transfer: Your existing stocks and shares investment are sold and the cash value transferred to your new stocks and shares ISA provider. It should take between two and three weeks.

SAVVY TIP: Make sure you don’t cash in your stocks and shares ISA, get the money transferred to your bank account and then try and invest it in a stocks and shares ISA. If you do that, you’ll have lost the tax-efficient status of your money. Your current ISA provider will sell your investments for you.

  • Stock transfer. Here, the investments that are currently in your stocks and shares ISA are transferred to your new stocks and shares ISA provider. While they’re being transferred you can’t sell any of your investments. It can take between four and six weeks (sometimes longer).

SAVVY TIP: This process is sometimes called a ‘re-registration’ or an ‘in specie’ transfer (gulp!). I used ‘stock transfer’ because I think it explains what’s going on.

How much of your stocks and shares ISAs to transfer

You don’t have to transfer all the money you’ve already invested in your stocks and shares ISA. Under the rules, you can:

  • Transfer some or all of the money you’ve invested in previous tax years. That means any money that’s been invested before the previous April 5th. So, as I write this on March 19th 2018, it would mean money you’d invested before April 5th 2017, if you transfer it before April 5th this year.
  • Transfer all the money you’ve invested in the current tax year. As I write this on March 19th, that means all the money you’ve invested before April 5th

SAVVY TIP: If you stick to these rules, the money you transfer won’t count towards your current ISA allowance.

The cost of transferring a stocks and shares ISA

The company you’re moving your stocks and shares ISA to shouldn’t charge you anything to transfer, but it is worth checking. However the company you’re transferring your stocks and shares ISA from may charge you an exit fee. They are more likely to charge you if you do a stock transfer than if you do a cash transfer.

Stock transfer and cash transfer compared

There are times when it might make more sense to transfer your stocks and shares ISA using a cash transfer method, and times when the stock transfer method might make more sense.

In broad terms:

Use a cash transfer: if the platform or stocks and shares ISA provider you’re moving to doesn’t offer the funds you’re currently invested in. You should also use a cash transfer if you want to sell up and move your stocks and shares ISA money into different investments. You could also use a cash transfer if the stocks and shares ISA platform or provider doesn’t offer the funds you currently have in the same share class.

SAVVY TIP: Share class or asset class is another bit of financial jargon that’s not particularly user friendly, but it’s worth understanding! The share class just refers to the version of the fund, for example, one share class may be available to individual investors directly, another may be available to investors only via a financial adviser etc. I’ve written a guide to the different share classes in funds.

  • Pros of using a cash transfer: it’s generally quicker than a stock transfer. It may be cheaper because investment platforms may charge you a fee if you transfer, or you may have to pay an exit fee to your old stocks and shares ISA provider if you use a stock transfer.
  • Cons of using a cash transfer: your money will be uninvested while it’s being transferred. You’ll incur costs of selling your investments and buying new investments once you’ve transferred. If your stocks and shares ISA is invested in companies that pay a dividend, it’s possible that you’ll miss out on dividend payments. You only get paid a particular company’s dividend if you own shares in that company on the ‘ex dividend date’.

SAVVY TIP: You can read more about dividends, including when you qualify for a dividend payment in my article called Understanding dividends.

Use a stock transfer: if you’re happy with your current investments and the provider you’re moving to offers them. It’s also better to use a stock transfer if you’re worried about your money being uninvested (‘out of the market’) for a few weeks. Your investments have to be cashed in before you can use a cash transfer, whereas it’s just the registration details that change if you use a stock transfer.

  • Pros of using a stock transfer: it means you can avoid the risk of your money not being invested for several weeks.
  • Cons of using a stock transfer: it takes longer than a cash transfer and you may be charged a transfer or exit fee.

SAVVY TIP: Some investment platforms and stocks and shares ISA providers will pay any exit fee levied by the provider you’re moving from. If you’re not offered this, it’s worth asking for.

Transferring a stocks and shares ISA to a cash ISA

If you want to transfer a stocks and shares ISA to a cash ISA, the procedure should be more straightforward. However, it’s worth knowing that not all cash ISA providers will accept transfers from a stocks and shares ISA.

  1. Find a cash ISA provider that will accept a transfer from a stocks and shares ISA.
  2. Download in fill in a transfer form and open the cash ISA. It’s important that you do this and don’t close the stocks and shares ISA.
  3. The cash ISA provider should arrange for money you have in your stocks and shares ISA to be transferred.

Related articles:

Investment jargon buster; investment terms explained

Different types of investment funds

How to avoid investment scams

SavvyWoman email newsletters: If you found this information useful why not sign up now to receive free fortnightly email newsletters with money saving tips and help? You can sign up at the top of any page on the website and your details won’t be passed to any other company for marketing purposes.