Flexible ISAs guide

Meadows2

A trick for exploiting flexible ISAs is given on the web page about Flexible ISAs, under "Play the system to max interest and keep ISA benefits". Unfortunately, as a new poster, I can't include links in my post:(.


Is this correct advice? It sounds too good to be true! Surely whether or not interest is taxed depends on where that interest was earned, not on where it happens to reside on the 5th April?

eskbanker

Meadows2 wrote: »

A trick for exploiting flexible ISAs is given on the web page about Flexible ISAs, under "Play the system to max interest and keep ISA benefits". Unfortunately, as a new poster, I can't include links in my post:(.

Is this correct advice? It sounds too good to be true! Surely whether or not interest is taxed depends on where that interest was earned, not on where it happens to reside on the 5th April?

Perhaps you misunderstood the point being made?

It's simply saying that in itself, shifting money out of a flexible ISA and then returning it by the end of the tax year doesn't shelter the interest earned in the non-ISA account from income tax, but the personal savings allowance might....

Meadows2

Ok @eskbanker - you're right, I misunderstood! It's just saying you could temporarily use some/all of your ISA cash to earn money in higher interest accounts, and still be tax-free as long as you earn no more than £1000-worth of interest that year, or whatever your personal savings allowance happens to be. I get it now. Thanks!

Overload

Hello, need abit of advice and hoping someone can help. I recently opened a Coventry Easy Access Cash Isa 1.50% and deposited the full £20K allowance for the 2019-20 tax year. On reflection I maybe was abit premature using up the full allowance as I have been reading up on Innovative Finance ISAs and would be interested in investing in them via the ISA route. Trouble is I have already used up this years £20k allowance. However rather than waiting a whole year I see that the Coventry ISA is flexible.

Does this mean I can withdraw money out of my Coventry ISA, open up an Innovative Finance ISA and put it in it?

I'm just not sure whether the withdrawn money has to be put back into the same Coventry Cash ISA.

masonic

Overload wrote: »

Does this mean I can withdraw money out of my Coventry ISA, open up an Innovative Finance ISA and put it in it?

I'm just not sure whether the withdrawn money has to be put back into the same Coventry Cash ISA.

If it is money withdrawn from the current tax year allowance it can be replaced in a different type of ISA.

david78

Just be sure to withdraw the money from the Flexible ISA first (creating a flexible allowance). Then you can open/subscribe to an IFISA up to the same value.

Overload

Thanks Masonic and David78 for the advice. I have just submitted a withdrawal request from my Coventry ISA (i.e. just done as a straightforward bank transfer). I will then use this money to open the IFISA.

I note before that you were always told if taking money out of an ISA to put into another ISA, to do it as a transfer otherwise you would lose the tax free status. The flexible ISA seems to be different in that you can just do a simple 'withdraw' to your current account and then use it somewhere else. Hope I have grasped that right.

Out of interest, does anyone know can you transfer money out of a IFISA back to a cash ISA? Say next tax year I don't want the IFISA anymore and want to transfer the whole balance back to a Cash ISA?

masonic

Yes, it was not formerly possible to transfer current tax year money between ISAs unless you transferred all of it. Flexible ISAs avoid this problem by not counting money that's been flexibly withdrawn against your ISA allowance.

You can transfer back to a cash ISA or another type of ISA at any stage. Many IF ISAs are flexible also, so if it is within this tax year you might be able to use the same procedure. If after the end of the tax year (or the IF ISA is not flexible) you'd need to do a formal transfer.

Overload

Brilliant thanks Masonic!

bail-in

"Another key rule is you must replace the money in the same ISA account you took it out from, with two exceptions.

If a full withdrawal results in the automatic closure of your account you can open a second cash ISA you can put money into (but you can only do this once per tax year)."

The above is on the money saving expert page on flexible isas. Does anybody know where this quote is found authoritively, e.g. HMRC, ISA guidelines. In Google the only reference to it comes up with the original above. Due to a combined ceding and receiving bank error in a cash ISA transfer between two banks contrary to the ISA Transfer Authority Form the full amount was transferred to the receiving bank and the ceding bank automatically closed my flex ISA account. The ceding bank said the receiving bank made the error and the flexible instant access ISA account could not be reopened. I need to move the past years subscriptions back into the flexible ISA but it is closed. So following above quote I asked to create a new flexible ISA account to which the ceding bank said no as I already have taken out an ISA for this year (with another bank) and funded it fully. But I would be funding the new flex ISA I want to create with the previous years subscriptions via ISA Transfer from my ISA received by the receiving bank in the first ISA transfer. I did the original transfer that went wrong to temporarily take advantage of a higher rate of interest while I looked for a higher rate provider to invest the past years' ISA monies and then before 5th April next year move the old ISA money back into the flexible ISA.Now having found a better rate I cannot arrange with the receiving bank to transfer it back as the flexible isa in the ceding bank was closed and the ceding bank will not be able to open another flexible ISA until next tax year. The ceding bank had not heard of the above header rule in quotes and I cannot find an HMRC reference to it. Anyone help?