Flexible Cash ISA and S&S ISA rules

jimjames

As someone who has never used cash ISAs it's not something I've really considered before but now rates are creeping up it's looking worth investigating.

The rules appear to be that with a flexible ISA you can have whatever money in and out of the account over the year up to the £20k annual limit but it's only what is in the account at the end of the tax year that matters and is reported to HMRC. So you could pay in £15000, take out £10,000 and pay in another £15000 and it would be within the rules as only the £20k at the end of the year would be reported to HMRC.

As I use my allowance for S&S ISA my £20k is taken up with that at the end of the tax year. However it appears that with the flexible ISA rules I could keep £20k in a flexible cash ISA up until the end of the tax year then just before the end of the tax year remove all of that money bar any remaining allowance from the S&S ISA. So the flexible cash ISA would be reported as say £1 and the S&S ISA as £19,999. As of the next tax year deposit the money back in to the flexible cash ISA again and carry on but still using the S&S ISA for the main allowance.

Obviously it only works for £20k of cash savings but does anyone know if this understanding is correct and if it's possible to do? 

AlwaysLearnin

Are you asking if you can in effect put £19999 in your s&s ISA and £20k in a flexible cash ISA in the same tax year (all being 'new ISA money') as long as you take £19999 out from the the cash ISA before the end of the tax year?  If so, nice idea, however I don't think it works like that (i.e. the £20k max total annual allowance still applies across all ISA types)

eskbanker

jimjames said:

As I use my allowance for S&S ISA my £20k is taken up with that at the end of the tax year. However it appears that with the flexible ISA rules I could keep £20k in a flexible cash ISA up until the end of the tax year then just before the end of the tax year remove all of that money bar any remaining allowance from the S&S ISA. So the flexible cash ISA would be reported as say £1 and the S&S ISA as £19,999. As of the next tax year deposit the money back in to the flexible cash ISA again and carry on but still using the S&S ISA for the main allowance.

Obviously it only works for £20k of cash savings but does anyone know if this understanding is correct and if it's possible to do? 

Happy to be corrected but my understanding isn't that withdrawals from flexible ISAs are netted off against the earlier contributions but that redeposits are netted off against earlier same-year withdrawals.

In other words, if you put £20K into a flexible ISA and withdrew £19,999 without redepositing that during the same tax year, I believe the figure reported to HMRC after year-end would be £20K not £1.

Edit: corrected below, ignore the above!

For flexible ISAs, the ‘net’ subscriptions – that is, the total subscriptions in the year (disregarding any additional permitted subscriptions, defaulted subscriptions and Help to Buy ISA reinstatement subscriptions), less any amounts withdrawn should be reported on the annual information returns.

isasmurf

.jimjames said:

Obviously it only works for £20k of cash savings but does anyone know if this understanding is correct and if it's possible to do? 

Yes, your understanding is correct. If you withdraw from a flexible ISA containing current year subscriptions, then the amount withdrawn is added back to your allowance which you are free to use in any other ISA.  In your example HMRC would only know you have £1 of cash subscriptions and £19,999 of SS subscriptions. 

Edit: As you now how have contradictory posts, HMRC ISA managers guidance says for flexible ISAs

Withdrawals of current year subscriptions, can effectively be replaced in any current year ISA, but cannot breach the ‘one ISA of each type per tax year’ rule.

jimjames

Thanks both. Interesting that it effectively gives you £40k to use in ISAs during the year so that's quite a handy feature to know if you use more than one type.

jimjames

AlwaysLearnin said:

Are you asking if you can in effect put £19999 in your s&s ISA and £20k in a flexible cash ISA in the same tax year (all being 'new ISA money') as long as you take £19999 out from the the cash ISA before the end of the tax year?  If so, nice idea, however I don't think it works like that (i.e. the £20k max total annual allowance still applies across all ISA types)

Yes that was the question, apologies if it wasn't clear. It seems from the link above that it is possible as the total allowance is still only £20k for the year, it's just above that for part of the year which in the example above would be 360 or so days.

Rhcichrrds

 I have an old ISA earning 0.1% and want to temporarily transfer it to Principality's Online cash ISA 2.5% (leaving it there until fixed rate ISA interest go higher). If I transfer the ISA, leave it in Principality for two  months and, then transfer it out to a fixed rate ISA with another bank, do I still get two months interest with Principality at 2.5%.  I ask because even though it is not a fixed rate ISA it says interest is paid is paid yearly, each year on 6th April.

masonic

jimjames said:

Thanks both. Interesting that it effectively gives you £40k to use in ISAs during the year so that's quite a handy feature to know if you use more than one type.

Though it's certainly not within the spirit of the rules. It's effectively a temporary cache for an extra £20k. Obviously you cannot accumulate ISA funds any more quickly across tax years. A step on the slippery slope to making it permanent in the knowledge HMRC doesn't usually take any action for a first offence.

masonic

Rhcichrrds said:

 I have an old ISA earning 0.1% and want to temporarily transfer it to Principality's Online cash ISA 2.5% (leaving it there until fixed rate ISA interest go higher). If I transfer the ISA, leave it in Principality for two  months and, then transfer it out to a fixed rate ISA with another bank, do I still get two months interest with Principality at 2.5%.  I ask because even though it is not a fixed rate ISA it says interest is paid is paid yearly, each year on 6th April.

Interest is calculated daily on virtually all accounts, and accrued interest is always paid upon closure.

Albermarle

Rhcichrrds said:

 I have an old ISA earning 0.1% and want to temporarily transfer it to Principality's Online cash ISA 2.5% (leaving it there until fixed rate ISA interest go higher). If I transfer the ISA, leave it in Principality for two  months and, then transfer it out to a fixed rate ISA with another bank, do I still get two months interest with Principality at 2.5%.  I ask because even though it is not a fixed rate ISA it says interest is paid is paid yearly, each year on 6th April.

If you transfer out from it, it will pay interest up to the day of the transfer.

until fixed rate ISA interest go higher).

You might have a long wait, in fact the best rates have largely been pulled. You may want to read this thread.

Are savings rates on their way down? — MoneySavingExpert Forum

Rhcichrrds

Albermarle said:

Rhcichrrds said:

 I have an old ISA earning 0.1% and want to temporarily transfer it to Principality's Online cash ISA 2.5% (leaving it there until fixed rate ISA interest go higher). If I transfer the ISA, leave it in Principality for two  months and, then transfer it out to a fixed rate ISA with another bank, do I still get two months interest with Principality at 2.5%.  I ask because even though it is not a fixed rate ISA it says interest is paid is paid yearly, each year on 6th April.

If you transfer out from it, it will pay interest up to the day of the transfer.

until fixed rate ISA interest go higher).

You might have a long wait, in fact the best rates have largely been pulled. You may want to read this thread.

Are savings rates on their way down? — MoneySavingExpert Forum

s its interest annually, on August 31st

Thanks for the reply.  I though there was some catch involved, when Principality mentions it will pay interest at the end of the year ( guess you lose the 15 days interest in the transfer period.)

 I just wanted to put this in a 2.5% non fixed rate isa for now to see if the rates go up in December.

One last question, they mention only one cash ISA can be opened. Am I  allowed to transfer another previous ISA again in to another separate  Principality 2.5% cash ISA (ending up with two Principalty Cash ISAs).