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ISAs are now more flexible than ever

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice. Tax rules can change in future. Their effects on you will depend on your individual circumstances.

Saving into a tax-efficient ISA is even more appealing now some providers are offering greater flexibility on these accounts. We explain how flexible ISA rules work, and how they could benefit you.

Click to toggle accordion What you’ll learn:

What this new ‘flexibility’ means for your ISAs.

How it affects withdrawals and your ISA allowance.

How flexible ISA rules affect ISAs opened in previous tax years.

Flexible ISA rules introduced in April 2016 mean you can now withdraw money from an ISA and return it in the same tax year, without this counting towards your current ISA allowance.

The rules aren’t compulsory and not every ISA provider will support them, but as a Smart Investor customer, you benefit from full flexible ISA support. Your ISAs will be 'flexible' automatically, so you won't need to do anything.

Withdrawals and your annual ISA allowance

A ‘Flexible ISA’ isn’t a new type of ISA – there’ll still be cash ISAs, investment ISAs and innovative finance ISAs at present. It was a change to the rules for existing ISAs to give you the freedom to withdraw your money and crucially, put it back again without affecting your annual allowance.

You can do this with a cash ISA, investment ISA, or an innovative finance ISA, as long as your provider supports it and you have a cash holding in your ISA to draw on. If you’re thinking of switching providers, it’s a good idea to check whether or not they support the new flexibility. The ISA flexibility rules do not apply to the lifetime ISA.

Flexible ISA rules cover dividend payments as well as cash withdrawals. Let’s say you have arranged to have dividends paid into a bank account. You’ll be able to pay these back into a flexible ISA if you want to, without this affecting your allowance.

The flexible ISA rules do not currently apply to the lifetime ISA. Withdrawals will forfeit the government bonus and face a 5% charge, unless they are being used for the intended purposes of the lifetime ISA. This includes withdrawing the money to fund the purchase of your first home worth under £450,000, or to put towards your retirement once you’re over 60 years old, or in you become terminally ill. Withdrawals made under these circumstances will be free of charge.

How is that different?

Many ISAs already allow you to get your hands on your money if you want to, but before the rules changed last April, any money taken out and paid back into the ISA still used up part of your annual ISA limit, which is £20,000 for the 2017-18 tax year. If you'd already reached the limit of your allowance for this tax year, you wouldn't be allowed to put any more back in.

How flexible ISAs work

Under flexible ISA rules, you can take money out and still put it back, provided you pay it back in the same tax year. For example, if you put £10,000 in your ISA during the current tax year then withdraw £2,000 later, you can pay this £2,000 back into the ISA you withdrew from this tax year and still be able to put in another £10,000 before 5 April, taking you up to the £20,000 allowance. Effectively any withdrawals first reduce your current year contributions and if you withdraw more than you’ve paid in this year then you create a ‘flexible allowance’.

Use your new ISA allowance

It’s a new tax year and you’ve got a new ISA allowance to use. You could invest up to £20,000 tax-efficiently in a Barclays Investment ISA.

Investment ISA
Remember, the value of investments can fall as well as rise, and you could get back less than you invest.
Tax rules can change in future. Their effects on you will depend on your individual circumstances.

Bear in mind that, you can’t subscribe to more than one of the same type of ISA in a single tax year. You can only pay back in withdrawals that relate to previous years’ subscriptions to the same ISA they were taken from. However, if you withdraw the full amount of your current year’s subscription, you could then pay it back into the same type of ISA from a different provider.

If your ISA has cash from previous tax years

If your ISA has cash from previous years, you can put back whatever you take out, but only into the same account. As long as you carry out both transactions in the same tax year, it'll count as replacing the cash, so it won't use any of your current year's allowance. In the example of someone taking £50,000 out of their ISA, they could add that back into the same ISA before the end of the tax year and also use their £20,000 ISA allowance on top of this – either with the same ISA provider or with another one.

Just bear in mind that you’re not allowed to put back more than you took out without using some or all of your current year ISA allowance. If you withdraw more than you’ve added during this tax year, withdrawals are treated as coming from your current year’s allowance first.

Things to remember

Whether your ISA contains money from this year, previous years or both, you always need to replace the money you withdraw in the same tax year to take advantage of the new flexibility. It’s worth remembering that some providers may not offer this new flexibility so if you hold ISAs elsewhere, it’s worth checking.

Take a look at your online statement to see your current year allowance and combined current year and flexible ISA allowance. You can make payments online or by phone if you’d prefer.

Remember too that tax rules may change in the future and whether or not particular tax rules benefit you, will depend on your circumstances. Always bear in mind that the value of your investments can fall as well as rise, so you could get back less than you initially invested.

Please bear in mind that this article is for general information purposes only. If you’re unsure, seek professional financial advice.

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice. Tax rules can change in future. Their effects on you will depend on your individual circumstances.

Barclays Investment ISA

Take advantage of tax-efficient investing with a Barclays Investment ISA and enjoy a cutting-edge service that makes investing easy.


Transfer your investment ISA

Transferring your ISAs held elsewhere to a Barclays Investment ISA is easy. You can do it online in four easy steps and we’ll cover your transfer fees up to £500. Terms apply. Before transferring, check any risks, charges, penalties, benefits you'd lose or investments you can’t transfer to us.