The start of the new tax year was quickly upstaged this month by the arrival of tariff policies that sent equity and bond markets into a flurry.

Before Trump took over the headlines, investors faced the usual deadline to max out their ISA contributions before the year was up, to take advantage of their £20,000 allowance. But now that the new year has started, some circumstances may have changed, causing you to reanalyse if you’d like to hold those savings in investments or cash.

FLEXIBILITY ON SPLITTING YOUR ALLOWANCE

While ISAs currently have a £20,000 limit per year for contributions, how that money is split across different ISAs has a higher degree of flexibility. There’s no cap on the number of ISAs you can open, and no limit on transfers between those accounts. This means ISA holders can transfer portions of their savings through the different vehicles without eating into the allowance if they decide they want to invest or put money back in cash.

There are still some restrictions around this. Savings in Lifetime ISAs, which are allocated specifically for first-time home buyers and retirement savings, will still be hit with a 25% penalty if they are moved into another account type outside of these restrictions.

But investors can move money between cash ISAs and stocks and shares ISAs with relative freedom.

As of 2024, this can include moves of partial amounts of savings in an ISA from one account to another regardless of what year it was contributed. Previously, only the entire contribution from the previous year could be moved from ISA to ISA.

THE TRANSFER PROCESS

Transferring between accounts does not mean manually withdrawing from one ISA and reinvesting in another. If you use this method, the money will lose its tax protection, and it will be treated as a new investment, eating into your £20,000 limit, when you try to re-enter it into an ISA wrapper.

Instead, the request is made to your ISA provider. This can be a new ISA provider or the current one. After filing the request, it should take 30 days or less to transfer between the different types of ISAs, or 15 days if you are moving between cash ISA accounts.

If moving money from a cash ISA to stocks and shares, there should be very little friction. However, if you are transferring from a stocks and shares ISA and moving to cash, you must have the amount you’d like to transfer available in cash in the stocks and shares account. If not, you would need to sell some of the investments in the account to move to a cash holding.

Depending on the provider, or if you are switching providers, there could be fees along with the transfer, so it’s always a good idea to check the small print before making the move.

WHAT’S EVERYONE ELSE DOING?

By the end of the 2024/25 tax year, about £431 billion was invested in stocks and shares ISAs while £294 billion was held in cash.

While the majority of Brits still don’t have an ISA, among those who do, cash was the more popular option for contributions. Only 7% of investors aged 45-54 contributed to a stocks and shares ISA, while 11% contributed to a cash ISA, and 1% contributed to both. This was the same for investors aged 55 to 64, and younger savers put even less in stocks and shares.

In the current market, it’s easy to see why investors have been eager to opt for cash. The Bank of England interest rate, at least for the moment, remains at 4.5%, creating comfortable returns. But over time, interest made on cash has failed to match the stock market’s inflation-busting credentials. In the past 20 years, the Bank of England estimates the price of goods has gone up by 73.6%. The MSCI World Index has increased, in pounds sterling, by 554.2% in that same amount of time.

CAN I TRANSFER TO SOMEONE ELSE’S ISA?

Can these same rules of transferring work for moving money into someone else’s ISA? Not really. You are the only person that can contribute to your ISA. But you can spread the wealth around your family to max out contributions. If your child has a Junior ISA, anyone can make contributions, including grandparents and family friends.

And while you can’t transfer an ISA directly to a spouse, you can withdraw that money and gift it to them tax free to use up both of your £20,000 allowances. Just remember, that money is now technically theirs. But if that money would otherwise not be invested in a tax wrapper, it can be a helpful way to create tax-free returns if the money is placed in a stocks and shares ISA.

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