ISAs
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735
16. Switching ISA investments
Once you've got an ISA up and running, and you've put your initial investment into it, you're not obliged to hold on to that investment for the rest of time. You can switch freely between the eligible assets within each ISA component:
For example, within the Stocks & Shares component, you could switch from shares to unit trusts, or from corporate bonds to shares, because they are all eligible investments in that component.
What you can't do is switch investments directly between the components of an ISA.
So, within the Stocks and Shares component, you couldn't sell your shares, and leave the cash proceeds in the ISA because cash is not an eligible investment for the Stocks & Shares component.
Jittery Jim - allowance all used up
- Jim Smart has used up his whole £7,200 ISA allowance by buying units in a high-tech unit trust, part of the Stocks and Shares component.
- He's getting cold feet about high-tech, and wants to sell some of his holdings and keep the £2,000 proceeds in cash. Ideally he wants that cash to be sheltered in his ISA.
- Unfortunately, cash is not part of a Stocks & Shares component. He can sell his units and realise £2,000, but he cannot keep cash in this ISA for any length of time.
- Furthermore, since he used his full ISA £7,200 allowance when buying shares, he can't put the £2,000 in a new cash ISA as that would be going over the annual limit. The cash will have to stay outside the ISA shelter, and interest earned on it will be subject to tax.
- The closest Jim can get to achieving his aim is to use the £2,000 within his Stocks & Shares ISA to purchase,say, a Corporate Bond unit trust. This is an eligible aset of the Stocks & Shares component and, whilst Corporate Bonds aren't entirely risk free, they are a lot safer than his high-tech unit trust.
Jittery Jim - allowance to spare
- Suppose that Jim had invested £5,000 in a high-tech unit trust held in a maxi- ISA, and nothing in cash or life assurance components.
- Again, he has a touch of the jitters and wants to transfer £2,200 into cash.
- As before, he can sell units to raise the £2,200 and, as before, he cannot keep cash in his Stocks & Shares component for any length of time.
- But this time there's a difference: when he first took out his ISA, he invested only £5,000 of the total £7,200 he was allowed to invest. So he has two choices:
- He can use the £2,200 within his Stocks & Shares component to purchase, say, a Corporate Bond unit trust, which is an eligible asset of the Stocks & Shares component. This option means he has still only invested a total of £5,000 into his ISA in the course of the year. Alternatively:
- He can take the £2,200 from the sale of his units out of the Stocks & Shares component, and put it in a new Cash component of his maxi-ISA. This will mean that, in the course of the year, he has invested a total of £7,200. Of course, he actually only has £5,000 invested, because the investment into the Cash component was made out of the proceeds of selling part of the Stocks & Shares component.
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