6 April, the beginning of the new tax year will soon be with us, but there’s still time to maximise the benefits of ISAs (individual saving accounts).
If you haven’t already done so, you still have a few days left to top up your ISA to its Annual Allowance limit of £20,000.
Although all ISAs have attractive features, primarily because any capital gains or income are tax free, one type of ISA, known as a Flexible ISA has some additional features.
In particular, if you hold a flexible ISA, such as the Courtiers Stocks & Shares ISA and you have withdrawn any cash from it during the current tax year, you are allowed to replenish your ISA with this money without this reducing your £20,000 annual subscription allowance.
So, for example, Mrs X subscribed £20,000 to her Courtiers ISA on 6 April 2021. On November 2021 Mrs X withdrew £8,000. As long as she puts back the £8,000 into her ISA by the end of the current tax year, i.e. by 5 April, she can do so without exceeding the £20,000 annual allowance.
In contrast if an ISA is non-flexible, any money put back into the ISA counts towards the annual subscription limit. In the case of Mrs X, as she has already reached her £20,000 limit she would not be able to put the £8,000 back in.
Improving cash flow
Looking ahead to the new tax year, the ability to withdraw cash from a Flexible ISA and replace it later in the year without reducing your annual ISA allowance could be particularly helpful in terms of improving household cash flow. For example, if you need money to pay an unexpected bill or make a purchase, and know you’ll have sufficient funds coming in later in the year to replenish your ISA.
Or, if you are investing in property, where you withdraw money to take out a bridging loan and replenish your ISA with the proceeds once you have sold the property.
It’s also possible to replace withdrawals from ISA subscriptions made in previous years as long as these are withdrawn and replaced in the current tax year. For more information on this and other rules about Flexible ISAs, please refer to this previous article.
Other types of ISA
It is important to note that it’s not just stocks and shares ISAs that can be flexible. Cash ISAs and Innovative Finance (peer-to-peer savings) can also have flexibility, allowing ISA holders to withdraw from one type of ISA and then put the same amount in another type of ISA in the same tax year. Always check with the ISA provider first that their ISA is a flexible one.
For any guidance you may require, your Courtiers Adviser will be able to help.