Can I pay into two Isas in one tax year?
But I have just opened a Halifax fixed-rate Isa, into which I paid another £5,760. So I've made two Isa payments in one financial year.
I mentioned my NS&I cash Isa to the Halifax employee when I opened my Isa, but she said that it wouldn't contradict Isa rules to have both as I can't make additional deposits to the fixed-rate account.
I didn't really understand what she said and I am now a little worried that I might have inadvertently broken the law. Have I? Or is it perfectly acceptable to open a fixed-rate Isa in the same year as adding to another Isa?
The rules are quite clear: you can pay into only one cash Isa per tax year. You can invest in a stocks and shares Isa as well, but not to another cash Isa. So I'm afraid the Halifax employee mis-informed you and you should take it up with the branch manager.
However, your predicament should be relatively easy to resolve. HM Revenue & Customs (HMRC) has an Isa helpline you can contact on 0300 200 3312. Call and explain the problem; it will advise you what action you need to take. If it was a genuine accident, it's quite likely you will just have to pay tax on the interest earned on the amount above your Isa allowance.
If Halifax really wanted your money, it could have suggested that you simply transferred your existing Isa funds from your NS&I Isa to the Halifax account – including the money you had invested with NS&I during the 2011/12 tax year.
How to make an Isa transfer
The four steps to making a successful Isa transfer:
- Find a new Isa with a great interest rate that accepts transfers in
- Apply for the Isa and fill out the cash Isa transfer form
- Leave your money where it is and your new Isa provider will work with your old provider to transfer the money. You don't need to do a thing
- Within 15 days of you handing over the Isa transfer form your savings should have appeared in your new Isa.
Francis Klonowski is principal of Klonowski & Co in Leeds.
The ISA rules allow investors to transfer money from an uncompetitive savings account with one provider into one from another provider that pays a better rate of interest. The bank to which you are transferring the money must do the transfer process, as withdrawing the money from the ISA wrapper means you lose the tax-free status. You can transfer a cash ISA into a stocks and shares ISA, but not the other way around and the current tax year’s cash ISAs must be moved whole to a single provider, but previous years’ ISAs can be split between new providers.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.