MSE News: Budget 2015: ISAs to become fully flexible with withdrawals allowed

jamesd

I didn't suggest otherwise, as should be clear from my posts which have been explicit about that limitation. You just happened to pick a post of mine where I didn't repeat something I'd written just seven pots earlier.

TomJ

Implication 2: If you want to boost the max amount you can keep in an ISA n the future, but don't necessarily want to leave the cash in there while rates are low, you could stick your entire allowance in on 5 Apr and withdraw it the next day. Come next 5 Apr, put it all back in along with the 2nd year's allowance and withdraw it the next day. Repeat for as long as it makes more sense to keep money in non-ISA accounts or until you don't have sufficient cash to continue.

DragonQ

The Help To Buy ISAs sounded really good in summary but the limit of £1000 initial deposit and £200 per month means you need to be saving for 5 years or so to get the full £3000 bonus.

Obviously with interest rates as poor as they are now though, the 25% top-up even on small amounts is far, far better than any interest that'd be earned in a different account. The only restriction of course is that you have to use the money for a mortgage to keep the bonus...and your ISA provider is likely to restrict you to taking out a mortgage with them.

jamesd

Tom3, right. More competition in the savings rate market, with us instead of the banks maybe ending up getting the income tax relief.

masonic

jamesd wrote: »

I don't see why. The intra-year exceeding or not of the annual allowance is tracked by the banks, not HMRC. The restriction of the money having to be returned in the same tax year means that the payments don't necessarily have to be shown on their annual report to HMRC at all. Though I presume that there would be a new category.

However, that's me assuming that the money has to be paid back into the same bank. That's just speculation. It could be any bank. If so, that would involve more work for HMRC alright.

I don't think they could restrict it to the same bank. People will want to be able to transfer their cash ISA if a better rate came along. If removing money effectively locked you to the same provider until you replaced it, then people are going to come a cropper.

bowlhead99

The way to run it across multiple providers would just be to have providers report withdrawals from cash ISAs. The total amount of withdrawals for a person globally would be a known amount of money. If the total amount of contributions subscribed to cash ISAs in a year exceeded the total annual allowance plus total withdrawals less total contributions to the S&S ISA, then the person has broken the rules. That gets picked up at HMRC level, while all an individual cash ISA provider can do is ensure that the maximums with him weren't exceeded because he only has the customer's word for it on the declarations the customer makes.

Of course, while a bank can implement a system of monitoring and reporting withdrawals and checking limits, it will not be at zero cost even though it sounds easy to the man on the street. Systems stuff is complicated.

masonic wrote: »

I don't think they could restrict it to the same bank. People will want to be able to transfer their cash ISA if a better rate came along. If removing money effectively locked you to the same provider until you replaced it, then people are going to come a cropper.

Yes people do want to be able to move around and that's why MSE is a popular place with everyone telling each other how best you can exploit every term and condition in town.

However, the government's aim is to allow people to take money out of 'their isa' temporarily and then put it back into 'their isa' afterwards. The spirit of the agreement is just that they don't want you to be shackled when you need a quick fix out of your long term savings. Not necessarily take it out, shake it about, go and buy a different ISA. That is effectively self-transferring which HMRC have always sought to restrict (although I think the regulations might currently let you get away with one a year).

So, the rules could feasibly be that you have to deposit the money back with the provider who knew what you had taken out, and then you could transfer it later if that provider didn't meet your needs. The government have not stated an intention that they intend to use this measure to increase competition through improved opportunities for rate tarting. That would be positive for consumers but with potentially greater compliance cost. Of course, nothing to stop these points being made during whatever consultation window is available.

The providers that have published comments on the 'inherit your deceased spouse's ISA' implied that the replacement ISA would need to be with the same provider (even if it is later transferred) so perhaps the 'replace your withdrawn ISA funds' will use the same concept. If you were the government and wanted to convince ISA providers that all this extra admin was worth it, you could at least say, "don't worry, if the money comes back it will go to you rather than your competitors, in the first instance"

masonic

bowlhead99 wrote: »

However, the government's aim is to allow people to take money out of 'their isa' temporarily and then put it back into 'their isa' afterwards. The spirit of the agreement is just that they don't want you to be shackled when you need a quick fix out of your long term savings. Not necessarily take it out, shake it about, go and buy a different ISA. That is effectively self-transferring which HMRC have always sought to restrict (although I think the regulations might currently let you get away with one a year).

I was thinking more along the lines of the customer taking a small proportion of their cash ISA funds out, intending to replace them before the end of the tax year (or however this will work). Meanwhile, the ISA manager slashes the rate on the ISA so that the remaining funds are earning a poor rate of interest (or makes it closed issue so that the money cannot be replaced). This leaves the customer shackled to the poor rate of interest until the money is returned, and possibly unable to return the money at all (perhaps ISA managers will be forced to allow customers to replace withdrawn funds into non-fixed term accounts to deal with the second point). Where a customer would normally deal with a rate cut by transferring out to a new provider, in this situation they must wait until they can replace the money and may not be able to do so for some months. If they withdrew £10k of a £60k ISA balance for some short-term need, then they may forego a significant amount of interest by not being permitted to transfer out (although at current rates, this is not much of an issue).

eltacano

Having tried to take in what has been said in this thread so far......
in summary I think it would be perfectly feasible to graft on to the existing rules - which already allow you to freely transfer cash between any ISAs you may have - a rule that you can transfer out from any ISA to any non-ISA account, and back again - as long as the transfer back is to the same provider (and I don't see why this transfer back should have to be within the same tax year).
You would just need to specify whether any amount paid from a non-ISA account to an ISA account was a transfer back or a new subscription. Simple!
Furthermore, if you don't want to transfer the cash back to the same ISA provider, all you'd need to do is first of all transfer it to your preferred ISA provider, and then do a transfer out from that provider, with a later transfer back to that provider.
However, I fear that there will be unnecessary restrictions imposed, and that this will be just one more disappointment from a budget full of attention-grabbing headlines - and not much more.

KDH_2

I can see the rates on instant access ISA's dropping to even lower levels with only fixed rate ISA's (with their interest withdrawal penalties) holding their interest rates at current levels. Providers are going to try and discourage all these transfers as much as possible.

Ed-1

DragonQ wrote: »

The Help To Buy ISAs sounded really good in summary but the limit of £1000 initial deposit and £200 per month means you need to be saving for 5 years or so to get the full £3000 bonus.

Obviously with interest rates as poor as they are now though, the 25% top-up even on small amounts is far, far better than any interest that'd be earned in a different account. The only restriction of course is that you have to use the money for a mortgage to keep the bonus...and your ISA provider is likely to restrict you to taking out a mortgage with them.

Also with a Help to Buy ISA your ISA allowance becomes £3400 in the first year and £2400 a year thereafter as MSE say that you can't open another cash ISA in the same tax year which means you lose the remainder of the allowance:

Q. Can I open this as well as a normal ISA?

A. No. If you open one of these you can't have a normal cash ISA in the same year. And as the most you can put in this in a year is £2,400 (£3,400 in year one) - that's a lot less than the normal £15,240 allowance for the next tax year. Then again, the gain due to the government contribution is much higher.

http://www.moneysavingexpert.com/news/savings/2015/03/budget-2015-help-to-buy-isas-to-launch