The money expert explains how savers can legally move large sums between accounts without breaching tax-free limits. His advice clears up a common misunderstanding that may be costing consumers investment flexibility.
Cash ISAs remain one of the most popular savings tools for UK consumers seeking tax-free returns. Despite their straightforward appeal, confusion persists over how the annual £20,000 contribution limit works, particularly when it comes to transferring funds.
Financial commentator and BBC Sounds host Martin Lewis, known for simplifying complex personal finance rules, has offered timely clarification. Speaking on his podcast, Lewis explained how many savers mistakenly believe they cannot move ISA funds exceeding £20,000 in a single tax year — a belief that could hinder their ability to optimise returns.
Annual ISA Allowance Applies Only to New Contributions
According to Lewis, the annual ISA limit of £20,000 applies exclusively to new deposits made within a tax year. This means that any money already held within a Cash ISA from previous years is exempt from the yearly limit if transferred between providers.
“You get £20,000 per year. The limit is on the money you put in,” said Lewis, clarifying that ISA transfers do not count as new contributions. In practical terms, this allows individuals with large ISA balances — accumulated over several years — to move their funds without affecting their current year’s tax-free allowance.
Transferring an ISA requires submitting a form through the new provider, who then coordinates the transfer with the existing institution. According to Which?, the consumer watchdog, the process typically takes up to 15 working days. This mechanism allows savers to switch to more competitive interest rates without losing tax advantages.
Providers Offer High Rates, but Terms May Vary
The transfer process is especially relevant as providers adjust their offerings amid rising interest rates. The Moneybox Flexible Cash ISA, for example, currently offers 5.71% interest, including a 1.51% bonus for the first three months.
However, this rate is conditional: more than three withdrawals in a year or a balance falling below £500 results in a drop to the base rate of 4.2%.
Flexibility is key to maintaining these benefits. As Lewis emphasised, savers can move large sums within ISA wrappers — even tens of thousands of pounds — provided they do not exceed the £20,000 cap on new money. This distinction empowers consumers to maximise returns while staying within the rules of tax-free savings.
Once a new ISA account is opened with a transfer bonus or introductory rate, Which? recommends tracking the end of the offer period. Savers may benefit from switching again to avoid being locked into lower rates, especially in a shifting interest rate environment.
