Can I close my new stock & shares Isa and start a another one?

I opened a new investing Isa with Freetrade for the 2021/22 tax year. 

It costs only £3 a month but having started to search for things I want to buy – ETFs, investment trusts and small cap shares – I’ve found they are not available unless you sign up for their Plus account, which is £10 a month.

If I had known the range of investments available in the standard account was so limited I would not have signed up for Freetrade in the first place. Is there a cooling off period which means that I can close the account and open another Isa elsewhere without having to go through the transfer process?

What happens if I just close the account and open another Isa now? I funded the Freetrade Isa with £1,000, which at the moment is still in there.

Ed Magnus of This is Money replies: Choosing a DIY investing platform can almost be as hard as deciding what funds or shares to invest in.

With such a wide range of platforms available to those looking to open a stocks and shares Isa for the new tax year, it’s enough to give anyone choice paralysis.

But having made the decision, it may not be too late to move your Isa to another platform. 

Although Freetrade’s terms and conditions are unclear over whether there is a cooling off period, cancellation periods offered by Isa providers typically range between 14 and 30 days.    

However, under current FCA rules on cancellation rights, it only covers ‘advised but not at a distance’ investing Isas. Interestingly, there is no obligation for a non-advised Isa provider like Freetrade to offer a cancellation period on a stocks and shares Isa.

As things stand, you can only open one of each Isa type in a given tax year.

For example, you cannot open two investing Isas in a tax year, but you could open one investing Isa and one cash Isa.

If Freetrade allow you to cancel within the 30-day cooling off period, you would be able to open a new investing Isa with another provider.

But if they won’t let you cancel, you will be unable to open another investing Isa until the next tax year.

In that case, if you still want to leave Freetrade, your best option would be to transfer the Isa to a new provider.

To switch providers, you would need to inform Freetrade and complete an Isa transfer form – from your chosen new provider – to move your account.

This is Money contacted Freetrade, as well as investment platforms AJ Bell and Hargreaves Lansdown in a bid to help provide some clarity on the matter and to find out whether the 30-day cooling off period applies.

Is there a cooling off period?

A spokesperson for Freetrade replies: We’re sorry to hear about this experience.

We would like to point out that the customer has a 30-day cooling off period, from the date the account was opened during which they can cancel and not have the £1,000 count towards their 2021/22 allowance.

The Isa is only considered ‘open’ once the customer has funded their account. 

If they reach out to our customer service team in the app someone will be able to assist them to get this sorted so they don’t lose out on their allowance.

If the customer decides to stick with Freetrade, it’s worth noting that the Plus subscription of £9.99 per month month includes the cost of a stocks and shares ISA.

Whilst our basic service includes all shares in the FTSE 350 and AIM 100, the MSCI US Prime Market, available ETFs from Vanguard, iShares and Invesco – our Plus account offers enhanced selection of small and micro-cap stocks.

What happens if I just close the account and open another Isa elsewhere? 

Sarah Coles, from investment platform Hargreaves Lansdown replies: If you close your account, withdraw the £1,000 and open a second stocks and shares Isa in the same tax year, HMRC would have the right to remove the tax benefits on investments made in that second Isa. 

What’s the advice for anyone thinking about setting up a new ISA?

Charlie Musson from investment platform AJ Bell replies: The restrictions around only being able to subscribe to one Isa of a particular type in a tax year mean it is essential to make sure you choose an Isa that has all the functionality and options that suit your needs.

Price is only one part of the equation and shouldn’t be the starting point.

For a long-term investment like an Isa, it is more important to identify the products that offer the investment options, service and flexibility that you need and then work out which of those is the most cost effective.

Sarah Coles replies: Before you open a stocks and shares Isa, you should check what’s on offer and if it suits your needs.

This doesn’t just mean access to the full range of investments you’re interested in.

You might also want options when it comes to tax wrappers – and access to things like Lifetime ISAs and Junior ISAs.

You also need to consider whether it offers the investment research, tools and guides to help you with your investment decisions – and a phone line where you can talk things through, or advice if you need more help.

The financial strength of the platform business is also important to consider.

And all of this is alongside the question of costs – and how the service you use ensures you get good value for the price you trade at.