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ISAs: Frequently Asked Questions

March 27, 2002

What happens if I already have shares that I want to put into an ISA?

You cannot transfer shares into an ISA. You can only 'subscribe' cash. So if you have shares that you want to get into an ISA, you'd have to sell them, put the cash into an ISA and then use that to buy them back within the ISA.

This is worth repeating. You cannot simply transfer your shares. You have to sell them, put the proceeds into the ISA and then buy the shares back from within the ISA. You will incur charges when selling the shares in the first place, including dealing costs and Capital Gains Tax (if applicable). Then you will incur dealing charges when you buy them back from within the ISA - not to mention the 0.5% Stamp Duty!

What about the share options I've been offered by my employer?

Shares maturing from some Inland Revenue approved company share schemes can be transferred into an ISA within 90 days of being exercised and you will not be regarded as having realised a capital gain. These include some Save as You Earn schemes and some Profit Sharing schemes. You will need to check with your employer to find out if your particular share saving scheme is "ISAble", and then you must bear in mind a number of points:

You may first have to pay income tax on the "profits" you have made (under the "benefit in kind" system) from being able to buy a share at a lower-than-market-value price in the first place. So if your company's shares are worth £2 on the open market but you've only had to pay £1 for them because of the share option scheme, you may still have to pay income tax on the £1 profit. You will not have to pay income tax if certain conditions are met. There are more details here.

Following that, the amount you can then put into the ISA will be based on the current market value of the shares e.g. AFTER you have exercised the option. So, in the above example, you will be able to put in 3,500 shares (priced at £2), which will make up your maximum £7,000 contribution.

What happens at the end of the financial year? Can I continue with my ISA or do I have to start a new one?

That's entirely up to you. You can continue contributing to the one you have already chosen if you want to -- it just rolls over to the next tax year. If you pay into it, it continues to be active, and you can't open a new one in that tax year. If you stop paying into the original ISA (before the new tax year starts) then you're allowed to start a different one in the next tax year.

One very important thing to remember is that, if you decide you want to start a new ISA at the beginning of the new tax year, it is vital to remember to cancel your direct debit (if you have one) into the ISA you already have. If you make any payment into your current ISA once the new tax year has started then you'll have to stick with it.

What happens if I open more than one ISA in a tax year?

Ooops! Only the first ISA you opened will be valid. You'll need to contact your ISA manager(s) and tell them what you've done.

What happens if I have a complaint?

In the first instance you should take it up with your ISA manager. If the issue is not resolved to your satisfaction, then you should contact the FSA or the Financial Ombudsman.

What happens if I want to take some money out of my ISA -- perhaps for an emergency -- and then continue contributing?

Some funds won't allow you to take money out without incurring charges, but others will allow you easy access like, for example, CAT-marked Cash ISAs. The rule is that your contributions must not exceed the annual allowance. It's the paying-in slips that count -- not the withdrawals. So, while you are free to take out your money, tax free, and use it for whatever you want, you won't be able to top it back up again later if you were drawing from a full account in the first place.

What happens if I don't like the way my fund manager is running my ISA?

You can transfer your ISA between fund managers whenever you like (just like PEPs), but only into the same type of component. For example, you cannot switch a cash ISA with one fund manager to a stocks and shares ISA with another -- it must be into another Cash ISA.

Some fund managers may charge a heavy penalty for the privilege of leaving them, so double check before you make the decision to move. In fact, you should probably check this before opening the ISA in the first place. I'd say you need a pretty good reason (like much lower costs than elsewhere) to justify having an ISA with an "exit charge". How the ISA is actually transferred depends on who's managing it.

In some cases your original provider turns the fund units or shares into cash at the prevailing price and this cash is then sent to your new ISA provider who uses it to buy shares. Other fund managers are happy simply to transfer the actual shares. Either way, if you want to move, the thing to do is to start by contacting the company you have decided to move to. They should be able to take it from there.

Can I open a joint ISA with my spouse?

No -- you're allowed one each per year.

What happens if I have opened an ISA and then move abroad?

You are not allowed to make contributions to an ISA if you don't normally live in the UK. But if you've opened one before you have left the country then the benefits will continue to accrue in your absence. You just won't be allowed to make any further contributions. Don't forget that, as far as foreign countries are concerned, ISAs don't mean anything. So, even though your money is still back home in Blighty and you haven't touched it, a foreign country might try to tax you on it according to its own rules.

I've been told it's not worth me putting my money into an ISA because I'm only a standard rate taxpayer. Can you explain why?

There is a 10% tax credit that ISA managers can currently reclaim for you, but this will be phased out by 2004. This will mean no tax benefits at all on dividends from having your shares in an ISA, particularly if you take into consideration the charges you are paying the fund manager.

You'll have to weigh up the pros and cons in light of your own financial circumstances. Many funds are no more expensive inside an ISA than they are outside of one. In this case it is always worth considering the ISA route. However, there are additional charges for most self-select ISAs. If you're investing new money each year then it is much more likely that you will end up paying Capital Gains Tax, and therefore need an ISA to reduce any potential liability.

What happens to the money if I sell some shares within my Self Select ISA but haven't decided what to buy next?

ISA managers will usually pay interest on the money that is being held "in anticipation" of being used to buy further shares. However, you will be taxed at a flat rate of 20% on this interest. This is partly to discourage you from dithering. Bear in mind that any cash being held in a Shares ISA in this way must be used for the purposes of buying shares. ISA managers aren't allowed to let you wait more than a few months before you make your decision so, if you wait too long, you'll eventually get a letter from them telling you to buy something with the money or ship out.

More: Find out how to get your free ISA guide | The ISA Centre