Having just completed another tax year end I’m always amazed at just how last minute a lot of people’s planning can be.  

There is always a sudden rush to squeeze in every last tax allowance you can. 

One of those useful tax allowances is the ISA allowance.  

The Individual Savings Account (ISA) has been around for many years now and you are probably aware that interest, dividends and gains made on money inside an ISA is tax free.  

The downside is that you are limited to only being able to add up to £20,000 a year into an ISA.  

Often people will put off making full use of their ISA allowance until towards the end of the tax year just in case they need the money before.  

If this is you then you might want to consider a flexible ISA. Rather than hurriedly trying to sort your tax year end planning you can do some tax year start planning. 

There is also a nifty little trick you can do with them.  

 

What is a flexible ISA? 


A normal ISA will allow you to add up to £20,000 in one tax year. If you withdraw money from a normal ISA, then you can’t put it back in unless you still have some allowance available.  

A flexible ISA is one that allows you to make withdrawals and then put the money back in during the same tax year without it impacting your allowance. 

For example, say you had saved £50,000 into an ISA over the previous tax years. You want to withdraw £10,000. Under normal ISA rules you would only be able to contribute the normal £20,000 allowance. 

If you do this with a flexible ISA, you will still be able to contribute the normal £20,000 allowance and also put back in £10,000 (so £30,000 in total) as long as you did it in the same tax year as the withdrawal.    

It’s a great feature protecting more of your money tax-free.  Especially for those that might want to dip into their savings without losing their allowance. Before flexible ISAs came along if you had to withdraw large amounts from your ISA you would lose the tax-free status of that cash.  

A flexible ISA can be a cash ISA or a stocks and shares ISA but not a Junior ISA or Lifetime ISA.  

Not every ISA provider offers a flexible ISA.  

At the time of writing here are some of the flexible cash ISA providers: 

  • Barclays. 
  • Coventry Building Society. 
  • Lloyds. 
  • Metro Bank. 
  • Nationwide. 
  • TSB. 
  • Virgin Money. 


Here are some of the flexible stocks and shares ISA providers: 

  • Vanguard. 
  • Barclays smart investor. 
  • Bestinvest. 
  • Charles Stanley. 
  • IG. 


So, make sure you check with your own ISA provider before making any withdrawals.  

If you do make a withdrawal from a flexible ISA you need to be careful to make sure that you pay back into the same ISA you took it out from. You can’t withdraw from one and put it in a different one.  

Some flexible ISA providers may limit you to a certain number of withdrawals per year or charge you a penalty.  

 

Why use a flexible ISA? 


A flexible ISA is a great way to do some tax planning.  

If you usually wait until the end of the tax year to use up your ISA allowance because you worry about needing the money during the tax year you can invest now and withdraw if you need it. 

It could be a great way to help out the family. Say your child or partner needs some cash now but you know they will be able to pay it back to you before the end of the tax year, you could use your flexible ISA to lend them the money. 

If you have a high income, it’s better to ensure any interest or dividends you earn on your money are tax free as soon as possible so doing your ISA at the start of the tax year makes sense.   

If you are using a stocks and shares ISA, it’s usually a good idea to invest your money as soon as possible as the longer-term money is invested the more chance of long-term gains however this is not guaranteed. It’s time in the market that counts not timing the market. 

It also means you start accruing dividends faster. 

Quite often it is the case that non-ISA savings accounts offer a better interest rate than cash ISAs. 

So one nifty way of using a flexible cash ISA could be to withdraw money from your cash ISA at the start of the tax year, place it into a higher earning interest account and then put the money back into your ISA before the end of the tax year.  

Clearly it would depend on your tax position to see if you were better off doing this but remember you can earn up to £1,000 a year each in interest tax free using the Personal Savings Allowance if you are basic rate taxpayers and £500 each if higher rate taxpayers. 

It could even be that you are due some money later in the year perhaps through inheritance or a bonus through work but want to take advantage of pension tax relief now.  

Remember if you make a personal pension contribution it will automatically get topped up by basic rate tax relief. So, an £8,000 pension contribution becomes £10,000. That’s £10,000 invested sooner rather than later using withdrawals from your flexible ISA. 

A flexible ISA offers you a lot more flexibility when it comes to managing your savings and investments. 

If you would like to stress test your retirement plans or even to get a plan in place then please get in touch for a free no obligation 15-minute call. We would be happy to review your position, explain where you stand and what you need to do to get the outcome you desire. We have created hundreds of happy and protected retirements over the years. This could be you too.  

Risk warning:

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.