Paragon lowered its interest rate. Can I do the following?

unodostres

Hello, I was lucky enough to be able to pay in the maximum allowance into a new flexible ISA account that I opened in April with Paragon. They have lowered their rates to 0.5% so I'm considering moving my money around.

Not sure if this matters, but I contributed into my Paragon account as follows:

+£5000

-£1000

+£1000

+£5000

+£5000

+£5000

Transferring an current year ISA to another provider means you have to transfer it in full, which isn't very appealing given the current rates. Because of this, I was thinking of doing the following:

1. Withdraw £10000 and use it to open a Cavendish Online or Vanguard Stock and Shares ISA

2. Use an ISA transfer to move the remaining £10000 to my old ISA account with Virgin, which offers a 1% interest.

Can I do this? According to the rules I can withdraw from a flexible ISA and use the money to fund a different type of ISA, and once that is done, I would be transferring in full and closing my current ISA with Paragon, but I fear this whole process might not be common and I will have to spend hours proving to HMRC that what I did was all compliant.

Thanks in advance

masonic

Yes, when you flexibly withdraw current year money from an ISA can be replaced in any valid ISA for that tax year and you can then transfer your remaining cash ISA subscriptions for that tax year to another cash ISA. HMRC will see £10k subscribed to a S&S ISA and £10k subscribed to a cash ISA, so there will be no explanations needed.

RetSol

I am in the same position.  On the one hand, I agree with Masonic and I could make myself better off by doing similar.  On the other hand, I could simply cut down on my monthly wine bill...

soulsaver

masonic said:

Yes, when you flexibly withdraw current year money from an ISA can be replaced in any valid ISA for that tax year ...

Any caveats? It doesn't have to be isa to isa for example? 
It doesn't matter if it was withdrawn from the flexi ISA along with prior years contributions?

FTAOD it doesn't apply to prior years contributions - that'd have to be returned to the flexisa and transferred to maintain its wrapped status?

masonic

soulsaver said:

masonic said:

Yes, when you flexibly withdraw current year money from an ISA can be replaced in any valid ISA for that tax year ...

Any caveats? It doesn't have to be isa to isa for example? 
It doesn't matter if it was withdrawn from the flexi ISA along with prior years contributions?

It doesn't have to be ISA to ISA. The money can be flexibly withdrawn to any account. Flexible withdrawals are rarely, if ever, made directly to another ISA account. It doesn't matter if prior year contributions are withdrawn along with the current year money, current year money can be replaced in any valid ISA for that tax year. Current year money is always withdrawn in priority to previous year money where both exist in an ISA.

soulsaver said:

FTAOD it doesn't apply to prior years contributions - that'd have to be returned to the flexisa and transferred to maintain its wrapped status?

"Yes, when you flexibly withdraw current year money from an ISA can be replaced in any valid ISA for that tax year and you can then transfer your remaining cash ISA subscriptions for that tax year to another cash ISA."

No, this does not include prior years contributions, because prior years contributions are not current year money. It also doesn't apply to ISAs that aren't flexible, since flexible withdrawals can only be made from a flexible ISA. The phrase "flexibly withdraw current year money" was chosen deliberately to make these limitations clear, although neither apply to the OP, who has opened a flexible ISA this tax year.

I'd always advocate those who wish to gain a general understanding about how features of an account work first of all consult an authoritative source (such as https://www.gov.uk/guidance/manage-isa-subscriptions-for-your-investors#f-isa ) for a comprehensive description, and then come here with specific questions. The OP appears to have done this, which is commendable. I think you'll find your broader questions about the existence of caveats that are beyond the scope of this thread are covered off in more detail than I could reasonably provide you in a forum post here.

unodostres

masonic said:

Yes, when you flexibly withdraw current year money from an ISA can be replaced in any valid ISA for that tax year and you can then transfer your remaining cash ISA subscriptions for that tax year to another cash ISA. HMRC will see £10k subscribed to a S&S ISA and £10k subscribed to a cash ISA, so there will be no explanations needed.

Thanks Masonic

soulsaver

Thanks Masonic - I know I was being idle, but ... er, it was late..

margaretx9

Oddly Paragon aligned all their old easy/instant access ISAs - including the latest one the OP opened I presume (issue 7) paying 1.21% back in April - to 1% in May.
Now they are paying different rates on them again - the lowest rate of 0.5% is on the most recent issue 7 which many people will have invested in back in April at the start of the taxyear when it was paying a market leading 1.21% for instant access!