New ISA rules may make the ‘5,000 miles for a Virgin ISA’ more attractive

Above all the noise in the UK Government budget about pension changes, you may have missed the changes relating to Individual Savings Accounts, or ISA’s:

ISA’s will be renamed NISA’s (‘New ISA’s’)

From July 2014, the annual limit on (N)ISA contributions will increase to £15,000

There will no longer be restrictions on how this must be split between cash and equities / bonds

You will, for the first time, be able to move money from a ‘stocks and shares’ ISA into a cash NISA

That last point opens up an interesting arbitrage for some people, including myself and my wife.  Every year, we use our cash ISA allowance to the maximum.  We do not use the ‘stocks and shares’ part of our annual allowance because we have / had jobs which are City based – we already have enough of our future tied up in the well-being of the stock market!

However, I AM now going to open a ‘stocks and shares’ ISA in the current tax year, to use up my £5,760 allowance.  Why?  Because, after July, I can close it down, liquidate the assets and turn it into a cash NISA!  Effectively, going this route allows me to sneakily double my investment in a cash ISA for the 2013/14 tax year.

But which ‘stocks and shares’ ISA to pick?

As it happens, Virgin Money is offering 5,000 Flying Club miles to anyone who open a new FTSE Tracker ISA. See here for full details.

There are two ways to invest. You can either invest a lump sum of £1,000, or make a £75 monthly investment for at least six months. In either case, you must leave the account open for six months.

You hopefully don´t need me to remind you that this is an investment product and you could lose some of your capital – these miles are definitely not risk free!

Virgin Money

The less risky option is £75 x 6 months = £450 invested. If you valued the miles at £50, you would still come out on top with a 10% fall in the market by the time you exit.

The £1,000 lump sum investment is clearly riskier – the value of the miles is wiped out with just a 5% fall in the market. As your entire £1,000 is invested on Day 1, you are also losing out on proportionately more bank interest as well.

You cannot open this ISA if you already have a ‘stocks and shares’ ISA for the current tax year. You can open one if you only have a ‘cash’ ISA for the current tax year.  The small print says that the offer is once per customer, although I know people who have opened one of these in earlier tax years and got the miles a second time.

This is certainly not one for totally unsophisticated investors.  However, if you don´t need the money back in the short term then you do at least have the flexibility to sit it out until the market gets back to your original investment level!

My plan is to open a Virgin Money ISA with my full remaining ‘stocks and shares’ allowance of £5,760 for the current tax year, and then close it down – transferring the proceeds to a cash ISA (by then they will be called NISA’s) – in exactly six months time.  If for some reason it is ‘out of the money’ at that point, I will simply let it run until it gets back to the original level.

(NB.  As usual on Head for Points, nothing written above should be considered as formal financial advice.  This is a website about airline miles, if you hadn’t noticed!)

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Comments

  1. If you already have an existing equity ISA e.g. Selftrade but have or have not used up your current tax year ISA allowance, can you still open another ISA with Virgin Money (I have no plans to transfer my existing one from Selftrade as I just want the Virgin miles).

    • You can only have one cash and one Shares ISA per tax year. Therefore if you have already opened a stocks and shares ISA in this tax year you cannot open another, even if you didn’t use your full alliance in the first one.

      • I have not opened a new ISA this year. I have an existing ISA since 2002 and have contributed before the end of each tax year.

        I have yet to contribute to the current year’s one nor have I “opened one this year”.

        So I eligible to apply for this?

    • If you contributes this tax year to Selftrade I assume you are blocked, if not I imagine OK.

  2. Mr Bridge says:

    the value of your investment can go down as well as up….there has to be an airline joke in there somewhere!!

  3. It’s not a website about grammar, either

    What are those apostrophes doing in ISA’s??

    :)

  4. If you were worried about changes in the value of the FTSE, could you invest in some sort of ETF at the same time that hedges against movements? Or use spread betting?

  5. Is it in black and white that you can convert a stocks and shares ISA into a cash NISA, come June/July? (Or in the case of this virgin offer, September.)

  6. Just to clarify on when the Virgin Miles post: It seems according to the T&Cs that the miles will post upon account opening, but will be removed if account is closed/un-funded during the six month period.

    Have the miles posted immediately in people’s experience so far of this offer?

    (The reason I ask is that I’m tantalising close to my VM target, and need to book the flight in the next month or so, rather than wait an additional six months)

    • I believe they do post quite quickly – perhaps someone will know (I was told but have forgot!). If mine post soon I will update this post, but the money was only taken from my account yesterday.

      • My miles posted 2 days after I applied, I went down the direct debit route and so they hadn’t even collected any money at that point. I was very impressed.

        I was hoping to close my account and open another in the next tax year but annoyingly my final £75 payment won’t be collected until after April 5th.

  7. What can 5000 Virgin Miles get you..?

  8. pazza2000 says:

    The miles post very quickly after the first deposit. I have always paid the minimum £75 for 6 months and then closed, although wonder if I should have as i have always came up top on interest (5%+), although as Raffles has said, you could loose a little also. Will apply again next month for another easy 5k

    • Singing Dwarf says:

      Have you earned more than one set of 5k points?

      From the terms and conditions of the offer:
      7. The offer is limited to 5,000 bonus miles per eligible application. One per customer.

      This implies to me, although not explicitly stated, that only one payment of 5,000 miles is (ever) made to one customer?

      • I assume he is in bed now (!) but I know for a fact that he has got the bonus in multiple tax years, opening a new ISA each time. The old one had been fully closed down by the time he opened the new one though.

        • pazza2000 says:

          Correct; 5k each tax year since ’11. Nothing lost, if anything I’ve earned more interest on the small sums temporarily held in the ISA than I have in my other savings products. Takes minutes to apply and cancel also, I suspect folks think otherwise as it appears to be fairly overlooked.

          • Agree, it was surprisingly quick to apply online and pay with a debit card. Paperwork came within 3 days, nothing to sign and nothing to send back.

          • Singing Dwarf says:

            Thanks, I’ve given it a go as nothing to loose – other than the value of my investment ;-)

          • Singing Dwarf says:

            So if the account I opened last week (2013/14 tax year) is closed after six months (say Sep 2014), I could then open another account between then and April 2015, in order to get the 5k bonus for the 2014/15 tax year too?

  9. Thanks, I may have a go at this with the minimum investment. Wouldn’t it be great if you could fund the ISA with 3V cards. A triple whammy !

  10. I don’t have a virgin miles account, I am going to open one, however before I do is there any sign up offers or deals anywhere for opening one anybody is aware of?

    • There is a referral scheme called ‘miles more friends’ where you can earn a few thousand extra miles on your first flight.
      I would of course be happy to refer you :)

  11. Applied yesterday afternoon and the miles have already been posted today!

    • True – I would never put tens of thousands into an ISA with a 1% fee. However, as I only intend to keep mine for 6 months and then close it, I will come out ahead! It is also worth giving Virgin credit for ease of use – it is a doddle to apply and they are very fast with the paperwork and the miles.

      • Agreed – each year I open the virgin isa for the minimum amount to collect the miles, then after 6months just have it transferred over to my main longterm isa, where i generally also top up to the annual allowance. So far I have always made a bit of money with virgin, and they have always been fast and professional dealing with everything. I would be happy to buy more standard insurance and financial products from them if they offered them (with miles).
        I value the 5k miles at £50, so if you open the account for £1k you are effectively up 5% immediately.

  12. Great idea. Thanks so much for this Raffles!