Mistakes to avoid when transferring your ISA
Updated
August 28, 2024
The Freetrade transfers team share their top tips for a smooth ISA transfer.
“Can you tell them to come and pick up their things between 3pm and 5pm? I'll leave it all in a box by the bins.”
A breakup might not be the first thing you liken an ISA transfer to but every now and again, there can be more similarities than you think.
The good news is there are lessons we can take from rough breakups to make sure our ISA transfers go a lot more smoothly.
We've spoken to Freetrade's transfer request team to understand the most common sticking points when it comes to ISA transfers and how to avoid them. So, as you start prepping a few lines for that ISA breakup chat (“It's not you, it's your fee for transfers”) here are a few things to keep in mind.
Before we get stuck in, remember this article is not personal investment advice and you should make your own investment decisions or seek independent financial advice.
Any tax benefits and tax treatment depends on your individual circumstances and may be subject to change in the future. Before transferring an ISA you should check you will not lose valuable guarantees or be charged excessive transfer penalties.
There are a wide range of reasons you might choose to transfer your ISA.
Some of the most common reasons for ISA transfers are:
Whatever your reason, it's important to make sure an ISA transfer is right for you before making the move.
The grass may look greener but the important thing to check is that you won't be considerably worse off by transferring.
Check if your current ISA provider will charge you for transferring away from them. Also, check you can transfer your investments from your investment ISA, rather than selling them first (as long as that's your preference).
While lower fees may be your reason for transferring, double checking the difference in ongoing costs once more can't hurt. Take a look at trading fees, ongoing account charges and any service fees that might be lurking behind those attractive upfront costs.
It may actually be the case that your perfect ISA match was under your nose the whole time (as sickeningly Hollywood as that might be).
Take a step back and factor in all the costs and, most importantly, if you're getting good value.
There are two routes to an ISA transfer. Some people prefer to transfer their ISA and stay invested (‘in specie' if we're being fancy about it) but you can also choose to sell your investments first and transfer the proceeds as cash.
In the first instance, your investments are transferred from one provider to another as is. They aren't sold and bought again on the other side. You might choose this option if you're worried of losing out on potential returns.
If you'd like to transfer your ISA and stay invested, before starting to fill out the transfer form it's important to check whether your future ISA provider can hold your investments.
This doesn't need to be an in-law style interrogation. But checking upfront should prevent any nasty surprises later (i.e. finding out that you can't transfer certain type of investments or specific stocks without selling them first).
We've all given the wrong phone number as a decoy once (or twice).
But when it comes to a smooth ISA transfer service, the less coy the better.
This starts by making sure you've given the right account reference number for your ISA to your future ISA provider when you fill out your transfer form. It might seem simplistic to mention but a little error like this can really hold things up, especially as different companies will need to speak to each other. Making them go in circles due to a slip up with your pen can draw the whole process out.
If you're unsure, check with your current ISA provider before filling it in.
Making sure your details are correct with your present and future ISA provider is vital.
Check your name, date of birth, national insurance number and contact details are up to date with both providers.
Most transfers are done electronically and for a transfer to get the green light, details need to match. Exactly.
This means if there's even a hyphen in the wrong place or missing, your transfer might get a left swipe (temporarily) and need investigating before going ahead.
The first step, make sure all of your details are up to date with both providers.
ISA transfers always start with you specifying whether you'd like to transfer all or some of your ISA.
You won't always have the choice though. HMRC ISA rules say that any ISA contributions for the current tax year have to be transferred in full. That means whatever you contribute as a part of your annual allowance will have to be entirely transferred over. Whereas with ISA contributions from previous tax years, you have the choice to transfer the whole ISA or just part of it.
When it comes to partial transfers, being able to specify the value of what you'll be transferring and what it includes acts as a useful marker during the transfer.
The transfer process always involves your current provider sending across a valuation of what's being transferred to your future ISA provider. And while a mismatch between what you'd like transferred and what your provider says you are transferring is rare (markets move and providers understand small fluctuations will happen), a transfer value estimation helps them double check everything is as expected.
Walking out of a restaurant and leaving your ex with the bill might be the last hurrah when it comes to your breakup. But unfortunately, it's unlikely to have the same effect with an ISA transfer.
Unpaid account fees are one of the most common reasons transfers get held up and, even worse, if your contact details are out of date on one side of the transaction, things are going to slow down.
Some providers will charge you for leaving their platform, so while you might be up to date in terms of account fees, a closing bill or ISA transfer exit fees could be a nasty surprise.
Checking if you'll be charged by your provider is an important step. You might find that selling your investments first and then transferring your ISA as cash is a cheaper way out.
Dividends also fall into this category. Sometimes, you'll get a dividend after you've transferred and it'll be paid to your previous account. This isn't usually a problem, as providers should sweep the account and send you the cash. However, make sure you check this is part of their process before kicking things off.
Thankfully, it's likely to be a lot less awkward than texting your ex asking for that Deliveroo order you mistakenly sent to your old address.
Once you've started the ISA transfer process, it's best to try and limit your trading activity while it goes through.
Most providers will continue to let you buy or sell while your ISA is set for transfer but it's important to understand this will slow the process down.
Settlement times for different investments vary. Then there's the fact that if your portfolio has changed your current provider will likely have to restart the transfer process.
If you think you might want to trade over the next few weeks, it's best to wait until this is complete before you start the transfer.
Once your ISA transfer is underway, the only thing you have to look out for is a message from your future provider, telling you it's complete.
Keep the standard transfer time frames in mind though.
Cash ISA transfers can take from two to four weeks to complete. They might take longer if you've asked your current provider to sell your individual shares to cash first.
Stocks & shares ISA transfers take a little longer, usually around four to six weeks.
Read more
It's simple and free to transfer many types of ISA accounts to Freetrade.
If you decide to move, you can open a stocks & shares ISA account as part of our Standard plan for £4.99/mo or Plus plan for £9.99/mo. Plus also includes a self-invested personal pension (SIPP). Other charges apply.
Before making your decision, read our page on transferring stocks and shares ISAs, which explains the options available and gives you the important information you need to know. And if you still aren't sure whether transferring your ISA is right for you, always check with a financial adviser first.
Make your money work a little bit harder with a tax-efficient investment account like our stocks and shares ISA. Get to grips with what a stocks and shares ISA is before you open an ISA account or transfer your existing ISA to Freetrade.
