Can someone please explain ISA transfers and this year's £20k allowance simply?

[Screechypants]

Please explain this ISA situation to me like I am 10 years old. Or even 5

I set up a Fixed Rate ISA in March 2025 with £20k. At the end of March 2026 the ISA had made £800 (approx interest). I transferred that ISA to a new one for tax year 2026/27.

Apparently if I add another £20k this year the entire amount will be tax free. Can that be true? I thought it was just up to £20k that was tax free, but apparently with a transfer that transfer amount doesn't actually count?

For some reason I have a total mental block about ISAs and have got this so wrong so many times. This year's £20K is currently a savings account and costing me tax on any interest accrued (the total amount in that account is much higher).

It's an annual allowance. You can put £20k of new money in each tax year. Once in an ISA you can also transfer it to another ISA.

There are people with over £1M in ISAs because they've put the amount in every year for decades, plus the interest and investment growth has compounded.

You didn't need to transfer the first isa.

Every year you can put up to £20k more into an isa. Any interest that is made is tax free as long as it stays in the isa.

Next year the rules are changing so that you can only put £12k into a cash isa and the rest would need to go into a stocks and shares isa (or you could put a larger amount into the stocks and shares isa as long as the total isa input is £20k max)

So apart from feeling like a moron. I thought that the interest free element is only on £20k and didn't realise any transferred money retained it's tax free status.

@Aleiha I thought I did need to transfer it as a the fixed rate of 4.5 was only for one year and then it reduced significantly?

Think of an ISA as being a "wrapper". Anything in the wrapper is tax-free. You can even change the wrapper to a different one, but as long as it isn't outside a wrapper at any point then it stays protected. Each tax year you can put a new £20k in a wrapper - it can be the same wrapper you currently have, a different one, or a mixture.

(Obviously this is different with cash ISAs from next year, with a lower amount than currently).

If it was a fixed rate isa it may have come to the end of tbe fixed rate period so the interest may have plummeted. It would have been daft not to transfer it into something paying more.

You can have as much as you want in an ISA as long as you dont had more that 20k total in new money in any tax year.

You are correct that it is usually best to transfer a fixed rate ISA at the end of the period if you can get a better rate.

Have you considered splitting your money between cash and S&S. You would get a much better long term return with S&S if you are able to leave the money to grow for minimum of 5 to 10 years.

well yes of course you can transfer it - but you don't have to.

Ongoing you just need to transfer though and not withdraw so it retains its ISA tax free status. We are always transferring ISA products for better rates. It’s so easy now.

Your first statement is the clearest explanation I have had to date. I don't know why I have such a block about grasping this pretty basic concept.

I wish we could have done the S&S ISA and had I been more clued up I should have done this a few years ago. It's all money for university for DD, so we can only realyy tie bits of it up, for a limited period befor access is needed.

Did you ask your (new) provider to do the ISA transfer?
Or did you withdraw the money and open a new ISA?
The first way keeps the money in the wrapper, the second way you will have removed it from the tax free wrapper.

To be a bit clearer:
The first way keeps the original £20k in the wrapper and you can add another £20k for this year.
The second way means you have withdrawn it from the wrapper and then used this year’s £20 allowance -so only one lot of £20k remains in an ISA wrapper.

And the interest does not count towards the amount you can add in a year
So 20k earned £800 in interest, you can still add 20k, not £19,200. New total is now £40,800.
The big rule is always open a new ISA with better interest and then transfer from the options they give you to fund the ISA. Never withdraw money from as ISA as it loses it’s wrapper as you do.

You can start a S&S ISA whenever you want, with either new money or transfer a portion of an existing cash ISA to S&S.

You should leave money in the S&S for at least 5 years to overcome any dips in the value.

And plan a year in advance when you want to withdraw it - if you need it in a hurry and Trump (or anyone) decides to attack another country, the value can fall for a few months before coming back up, so you need to be able to wait out the troughs.

@HedgehogHome I did a transfer, but only becasue it was less complicated!

We are at an age when we are starting to use money saved in ISAs over 30 odd years. They were called something else before they were called ISAs. Earlier posters have covered the key points, but a couple of observations. Always check the interest rates on cash ISAs and switch to the highest rate you can find. There are some providers that you will have never heard of, but as long as they are covered by the FCA your money is safe up to £120,000. At the end of fixed rate terms the rate usually drops, so you need to keep an eye on things and transfer at the end of the term. Some providers offer a bonus for new users for a short period, watch the ts and Cs, cos you lose the bonus if you transfer out before their set time period. On BBC Sounds look up the Martin Lewis Show, and go through past episodes looking for ones covering ISAs, usually around the end of March/ early April when the new tax year starts. He covers them really well. We have managed to build up a good size pot over the years, and find them very useful to balance our pension withdrawals to keep things as tax efficient as possible. With online accounts it is very easy to transfer and keep an eye on rates etc. It used to be a pain going round high street banks to find the best deals.

How many years is it until the money is needed?

Transferring to / investing in a stocks and shares ISA could make sense if it’s more than a few years to go.