Does an ISA Transfer Count Towards Your Allowance?

An Individual Savings Account (ISA) is a type of savings and investment account available to residents of the United Kingdom. It offers a favorable tax status, meaning that money held within an ISA is exempt from income tax and capital gains tax on investment returns. This article clarifies how ISA transfers interact with the annual ISA allowance.

The ISA Annual Allowance

The ISA annual allowance represents the maximum amount of new money an individual can contribute to their ISAs each tax year. This limit is set by the UK government and applies across all ISA types, including Cash ISAs and Stocks and Shares ISAs. For the 2025/2026 tax year, the allowance is £20,000.

The allowance resets at the beginning of each tax year, which runs from April 6th to April 5th of the following year. Any portion of the allowance not used by the end of the tax year is lost and cannot be carried forward.

Types of ISA Transfers and Their Rules

ISA transfers allow individuals to move existing ISA funds between different providers or even between different types of ISAs without losing their tax-free status. There are two primary scenarios for transferring ISA funds, and their rules differ slightly. Neither type of transfer consumes any portion of your annual ISA allowance for new contributions.

One common transfer involves funds contributed in previous tax years. You can transfer all or part of these savings to a new ISA with a different provider or type.

The second scenario involves transferring funds contributed in the current tax year. If you choose to transfer these funds, you must transfer the entire amount contributed for that year into the new ISA. For example, if you put £5,000 into a Cash ISA this year and decide to transfer it, the full £5,000 must be moved. The general rule is to transfer the full amount.

How Transfers Affect New Contributions

ISA transfers do not count towards the annual allowance because they involve moving money already held within the tax-efficient ISA wrapper, rather than introducing new capital. The allowance is specifically for new money entering an ISA. Completing an ISA transfer leaves your full annual allowance available for making new contributions.

For example, if you transfer an ISA containing £40,000 from previous tax years, you would still have the full £20,000 allowance for the current tax year to deposit new money. The tax benefits remain protected throughout the transfer process.

Important Considerations for ISA Transfers

To ensure an ISA transfer is processed correctly and maintains its tax-free status, follow specific procedures. The transfer must always be arranged directly through the new ISA provider. The new provider will initiate the process and contact your existing provider to facilitate the transfer of funds.

Avoid withdrawing funds from an existing ISA yourself with the intention of re-depositing them into a new one. If you withdraw the money, it loses its tax-free status and any re-deposit would count as a new contribution towards your annual allowance. This could inadvertently use up your allowance or prevent you from re-depositing the full amount. While some “flexible ISAs” allow re-deposits of withdrawn funds within the same tax year without impacting the allowance, relying on a direct transfer process is generally the safest approach to protect your tax benefits. Transfers typically take between 15 working days for Cash ISAs and up to 30 days for other ISA types.