Confused
scottyrom76
Forumite 
Play the system to max interest and keep ISA benefits
Taking this to its extreme, there's a nifty trick you could use to keep your money tax-free forever in an ISA while getting a higher interest rate for most of the year.
Let's say you have £50,000 in flexible ISAs, but other savings accounts pay higher interest that you want to take advantage of, and you don't want to lose your ability to keep £50,000 tax-free year after year as you can in a cash ISA. Plus remember the personal savings allowance means you can earn up to £1,000 in interest in non-ISA savings accounts each financial year tax-free.
Here's how:
- At the start of the new tax year – so from 6 April – withdraw the ISA cash.
- Put it in (several) high interest accounts.
- Before 5 April the following year just put it back in the ISA to keep your tax protection.
- Repeat the process again and again.
This means your money would be earning more interest for most of the year, whilst still keeping the long-term benefits of an ISA.
The above is posted on MSE (had to exclude links). Is this saying that the interest earned on the higher interest rate savings account during the year wouldn't be taxed because capital plus interest is transferred back into a tax-free ISA by the end of the tax year ? I don't understand the benefit if not. I'm probably just being slow ;-)
Replies
https://www.moneysavingexpert.com/savings/flexible-isas/
However, the interest earned while outside the ISA is taxable, so the practice isn't as beneficial in the current interest rate environment as it was when the article was written - the benefit is "to keep your money tax-free forever in an ISA while getting a higher interest rate for most of the year" in the scenario where "you have £50,000 in flexible ISAs, but other savings accounts pay higher interest that you want to take advantage of, and you don't want to lose your ability to keep £50,000 tax-free year after year as you can in a cash ISA", but that benefit is heavily diluted (or even negated) if you end up paying significant tax on your interest.
You need to do the maths for your own circumstances to ascertain if it's actually worth doing - like many MSE 'loopholes', it's far from universally applicable and beneficial....
@fwor doesn't seem to have heard of Flexible ISAs, although they have been around for several years now. With a Flexible ISA you can withdraw as much money as you like and any money that you pay back within the same tax year does not count against your ISA allowance.
But only with the same provider I read......is this correct ?