Flexible ISAs guide

kennethmac2000

masonic wrote: »

I'm not going to delve into the primary legistlation to see what it says, but HMRC rules do provide for cash ISA self transfer

Actually, this is expressly permitted by regulation 4B of the ISA Regulations currently in force, so I’m happy to correct the record on that. I would say it’s probably unnecessary to describe it as a “loophole” then (depending on one’s definition of loophole), since the law specifically permits it. It’s a feature of the ISA system now.

Of course, one issue with using the ‘self-transfer’ route is that you can only transfer up to the annual contribution limit using this method.

Finally, on your two bullet points above, a third valid scenario would be that you remove previous year’s subscriptions from flexible ISA A (of type X) and pay them into ISA B (of type X). Perhaps you could argue that’s a subset of your second bullet.

masonic

kennethmac2000 wrote: »

Finally, on your two bullet points above, a third valid scenario would be that you remove previous year’s subscriptions from flexible ISA A (of type X) and pay them into ISA B (of type X). Perhaps you could argue that’s a subset of your second bullet.

I don't follow how that could be valid. It doesn't fit the self-transfer rules if the type is not restricted to cash, and it doesn't fit the rules around general flexibility, which state flexible withdrawals from previous year's subscriptions must be replaced in the same ISA or would be treated as new subscriptions at ISA B.

kennethmac2000

masonic wrote: »

I don't follow how that could be valid. It doesn't fit the self-transfer rules if the type is not restricted to cash, and it doesn't fit the rules around general flexibility, which state flexible withdrawals from previous year's subscriptions must be replaced in the same ISA or would be treated as new subscriptions at ISA B.

Actually, you’re quite right. Sorry. 😊

However, re-reading this part of what you said earlier:

masonic wrote: »

- you have withdrawn all of the current year subscriptions from a cash ISA (whether the ISA is flexible or not) and then opened a second cash ISA and made subscriptions to it - can be done once per tax year (ISA self transfer loophole)

What might be referred to as the ISA self-transfer loophole and (now) is expressly permitted by regulation 4B of the ISA Regulations only relates to the full closure of cash ISA A (ie, not just the removal of current-year subscriptions) prior to the opening of cash ISA B.

Technically, you are only allowed to “subscribe” to one ISA of a particular type per year (regulation 4(1) and 4(1B)), and a subscribe status, once obtained, is not lost solely because the net subscriptions to that ISA are now zero. In other words, following the letter of the rules, withdrawn current-year subscriptions (even if these are the _full_ current-year subscriptions) from a flexible cash ISA should only either be put back in the same cash ISA or in an ISA of a different type.

That said, if the “subscribe” status isn’t actually transmitted to HMRC by the ISA manager as you mentioned, then in practice you could pay in and withdraw current-year subscriptions to/from multiple (ie, >2) flexible cash ISAs in a year, as long as you are moving the full current-year subscriptions each time (or, at least, never ending up with net positive current-year subscriptions to more than one cash ISA).

masonic

kennethmac2000 wrote: »

What might be referred to as the ISA self-transfer loophole and (now) is expressly permitted by regulation 4B of the ISA Regulations only relates to the full closure of cash ISA A (ie, not just the removal of current-year subscriptions) prior to the opening of cash ISA B.

Yes that's exactly what I was referring to. HMRC's position is it applies "whether or not that ISA was closed" (see post #41). I don't believe "closed" is defined in the Regulations and by convention an ISA relating to each tax year is treated as a separate account. So the Regulations may not necessarily be at odds with HMRC's guidance, if the current year account is treated as closed when only previous year funds remain under management. The subject of interest could be a fly in the ointment in that regard.

Technically, you are only allowed to “subscribe” to one ISA of a particular type per year (regulation 4(1) and 4(1B)), and a subscribe status, once obtained, is not lost solely because the net subscriptions to that ISA are now zero. In other words, following the letter of the rules, withdrawn current-year subscriptions (even if these are the _full_ current-year subscriptions) from a flexible cash ISA should only either be put back in the same cash ISA or in an ISA of a different type.

That said, if the “subscribe” status isn’t actually transmitted to HMRC by the ISA manager as you mentioned, then in practice you could pay in and withdraw current-year subscriptions to/from multiple (ie, >2) flexible cash ISAs in a year, as long as you are moving the full current-year subscriptions each time (or, at least, never ending up with net positive current-year subscriptions to more than one cash ISA).

Yes, agree on this, and it would apply to flexible S&S and IF ISAs also.

kennethmac2000

masonic wrote: »

Yes that's exactly what I was referring to. HMRC's position is it applies "whether or not that ISA was closed" (see post #41). I don't believe "closed" is defined in the Regulations and by convention an ISA relating to each tax year is treated as a separate account.

Actually, regulation 4B(3) does define "closed":

(3) In this regulation, an account is closed where -
(a) the account investor withdraws from the account all account investments, other proceeds
in respect of such investments and cash, representing subscriptions to the account (and
closure shall be treated as occurring at the date of such withdrawal), and
(b) no further subscriptions to the account are made during the remainder of the year, after
such withdrawal.

There is no corresponding definition in the Regulations for opening an account, but the concept of opening an account is referred to (in regulation 12), and in a way which makes clear it is a different concept to that of subscribing to an account (regulation 12(1)):

"An application by an individual to open an account in the year in which he first subscribes to that account, and in the year following a year in which that individual has not subscribed to the account, must be made to an account manager in a statement..."

Therefore, my reading of regulation 4B ("Closure of cash account that is not a junior ISA account prior to the opening of the same type of account to be disregarded once") is that it is really referring to full closure, and not just a withdrawal of current-year subscriptions.

masonic

kennethmac2000 wrote: »

Actually, regulaton 4B(3) does define "closed":

(3) In this regulation, an account is closed where -
(a) the account investor withdraws from the account all account investments, other proceeds in respect of such investments and cash, representing subscriptions to the account (and closure shall be treated as occurring at the date of such withdrawal), and
(b) no further subscriptions to the account are made during the remainder of the year, after
such withdrawal.

There is no corresponding definition in the Regulations for opening an account, but the concept of opening an account is referred to (in regulation 12), and in a way which makes clear it is a different concept to that of subscribing to an account (regulation 12(1)):

"An application by an individual to open an account in the year in which he first subscribes to that account, and in the year following a year in which that individual has not subscribed to the account, must be made to an account manager in a statement..."

Therefore, my reading of regulation 4B ("Closure of cash account that is not a junior ISA account prior to the opening of the same type of account to be disregarded once") is that it is really referring to full closure, and not just a withdrawal of current-year subscriptions.

For cash ISAs, where there would inevitably be accrued but unpaid interest, I'd tend to agree on the basis of the part I've put in bold, although the part coloured blue may except interest from the requirements since interest would not represent subscriptions to the ISA (in contrast to cash directly subscribed and investments bought using that cash). It would appear HMRC interprets this regulation differently to you and there is potentially enough leeway in the language used for them to do so legitimately.

As mentioned previously, HMRC also makes a distinction between the "current year account" and "previous years account" for ISAs and so withdrawal of all of the subscriptions from the current year account without withdrawing any subscriptions from the previous years account would fulfil the requirements of closure as defined in regulation 4B(3) provided accrued but unpaid interest was not defined as representing a subscription to the account.

nathankw

Hi, I need to access a large amount of saving for a short period (due to propery purchase) and was assuming that would mean I would lose the ISA status on all the money withdrawn.

However, I've now discovered flexible ISAs and wondering if that can help me?

One of my ISAs (with Virgin) is flexible. I have a number of other ISAs (some cash, some share) opened at various times over the years which aren't flexible. I've not paid into any of them this year.

So I'm hoping I can transfer all of my ISAs into my flexible virgin ISA.

Then at the start of that tax year in April I'll withdraw most of that money from the virgin ISA.

Am I correct that as long as I pay that money back into the virgin ISA in the same financial year it would keep the ISA status. Then I could transfer those funds back into their original homes (or somewhere better) keeping the status?

From what I've ready that should all be allowable and there is no maximum limit as long as all the funds are currently ISAs.

Would be great if someone could confirm this is right. Thanks.

masonic

nathankw said:

So I'm hoping I can transfer all of my ISAs into my flexible virgin ISA.

Then at the start of that tax year in April I'll withdraw most of that money from the virgin ISA.

Am I correct that as long as I pay that money back into the virgin ISA in the same financial year it would keep the ISA status. Then I could transfer those funds back into their original homes (or somewhere better) keeping the status?

From what I've ready that should all be allowable and there is no maximum limit as long as all the funds are currently ISAs.

Would be great if someone could confirm this is right. Thanks.

Yes, you could do that.

Straightbat

One thing that really irtitates me is misleading guidance and advice.

1. I've just opened a new ISA into which I will not put any money from this year's allowance, but transfer funds into it from an ISA funded in a previous year.  Yet I have to agree to a declaration that says I am applying to subscribe to it.  Correct me if I'm wrong but I think subscribe is the technical term term for paying in money from this year's allowance, which I am not applying to do.  So really I have to lie in order to open it!

2. I suggest that in normal usage subscribe would mean paying in or transferring in any funds, including savings in other ISAs from previous years.  Hence the undertaking not to subscribe to two ISAs in the same tax year is also confusingly misleading, imo.

3. The biggy...Martin (Lewis) is WRONG!  In the flexible ISA guide he states, 

"If you've an ISA just with cash from previous tax years. It's simple. Whatever you withdraw you can replace into the same account. As long as it's all in the same tax year, it'll count as replacing the cash and won't use any of the current year's allowance. However, you can't put back more than you took out even if you didn't fill past years' allowances, so to use your current year's allowance you'd need to open a new account.Say Kate has £20,000 in past years' ISA cash and withdraws £5,000. She can put £5,000 back in during the same tax year but no more."

I withdrew money from a flexible ISA that I had not paid new money into during this tax year, and the amount I'm now allowed to pay in for the current tax year includes the amount I withdrew AND this year's allowance.  

"so to use your current year's allowance you'd need to open a new account" is plainly WRONG!

I realised this before I withdrew anything and wrote to him but the glaring error has still not been corrected 😕.

masonic

Straightbat said:

One thing that really irtitates me is misleading guidance and advice.

1. I've just opened a new ISA into which I will not put any money from this year's allowance, but transfer funds into it from an ISA funded in a previous year.  Yet I have to agree to a declaration that says I am applying to subscribe to it.  Correct me if I'm wrong but I think subscribe is the technical term term for paying in money from this year's allowance, which I am not applying to do.  So really I have to lie in order to open it!

It is a legal requirement that you apply to subscribe to an ISA when you open it. It is not necessary to do so, however, and as long as you follow the declaration that you do not subscribe to another ISA of the same type in the same tax year that you subscribe to the ISA you are opening (which is achievable by not subscribing to the ISA you are opening), then everything is fine.

Applying to subscribe to an ISA does not mean you must do so, but the provider must afford you the capacity to do so and they cannot do that without your declaration.

Straightbat said:

2. I suggest that in normal usage subscribe would mean paying in or transferring in any funds, including savings in other ISAs from previous years.  Hence the undertaking not to subscribe to two ISAs in the same tax year is also confusingly misleading, imo.

This is why terms with specific meanings are defined so as to avoid such confusion. People use language in lots of different ways. You may be shocked to learn that in certain parts of the country, a round bread roll is described as a "cob"!! While others might be misled into thinking the user of such a term was referring to a male swan, a hazelnut, or even that cylindrical husk to which sweetcorn is attached. Whereas I've never heard anyone, anywhere, in common parlance, describe making a financial transaction involving a deposit account using the term "subscribe", other than specifically to refer to subscribing money to an ISA against their annual allowance.

Straightbat said:

3. The biggy...Martin (Lewis) is WRONG!  In the flexible ISA guide he states, 

"If you've an ISA just with cash from previous tax years. It's simple. Whatever you withdraw you can replace into the same account. As long as it's all in the same tax year, it'll count as replacing the cash and won't use any of the current year's allowance. However, you can't put back more than you took out even if you didn't fill past years' allowances, so to use your current year's allowance you'd need to open a new account.Say Kate has £20,000 in past years' ISA cash and withdraws £5,000. She can put £5,000 back in during the same tax year but no more."

I withdrew money from a flexible ISA that I had not paid new money into during this tax year, and the amount I'm now allowed to pay in for the current tax year includes the amount I withdrew AND this year's allowance.  

"so to use your current year's allowance you'd need to open a new account" is plainly WRONG!

I realised this before I withdrew anything and wrote to him but the glaring error has still not been corrected 😕.

I doubt Martin had much to do with that article, but it does highlight why the MSE forums are a much better source of information than the main MSE site for such queries. Although the summary statement "Say Kate has £20,000 in past years' ISA cash and withdraws £5,000. She can put £5,000 back in during the same tax year but no more" is correct, "so to use your current year's allowance you'd need to open a new account" is clearly not. While it is the case that HMRC treats money subscribed in the current year as residing in a separate "current tax year account", providers do not, and it seems unnecessary to make such a confusing statement when discussing replacement subscriptions.