Can I transfer a cash ISA to a stocks and shares ISA?

Q: I have a cash ISA from the 2007/08 tax year as well as a stocks and shares ISA from a different provider. I would like the stocks and shares ISA to remain where it is but, because of poor interest rates, I would like to transfer the cash ISA to a stocks and shares ISA with a new provider.

However, I have opened and subscribed in full to another stocks and shares ISA this tax year (2013/14). It is my understanding you cannot have more than one stocks and shares ISA during any one tax year. What are my options?

Francis Klonowski is principal of Klonowski & Co in Leeds.

A: You can certainly transfer your cash ISA into a stocks and shares one at any time, however, the reverse is not allowed. So once you have made the change, you won't be able to transfer the money back into a cash ISA.

The transfer will not affect the tax-free status of the original investment. It will still be counted as an ISA investment for 2007/08, so you still have your full ISA allowance during this current tax year. Technically speaking, the rule is that you can only subscribe to one stocks and shares ISA in a tax year. You can use the same ISA provider that you currently have, and can even purchase the same underlying fund or share[s] that you have at the moment.

When an ISA is transferred, the old manager must provide the new manager with a written notice containing full information about the original investment and a declaration (known as a "transfer history form"). This means the new ISA manager can differentiate the tax years, and your valuation statements will probably show this.

Your question in turn begs another question: should you switch out of cash in the first place? Interest rates may be quite low at the moment, and the temptation to chase better returns is understandable.

However, such a move involves investment risk, and there is no guarantee that the higher returns will materialise. Your decision should therefore be taken in the wider context of your overall financial planning: it will depend on whether you can accept the risk, what return you need on the money, and how early you are likely to need access to the money.

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