1-day bridge loan to preserve ISA allowance on flexible ISAs

Expotter

MoneySavingNovice said:

Sorry but that still doesn't work under the rules.

The flexible ISA amount is only applicable to the amount invested (max £20k cash) in that tax year. 

You're going across Tax years

So to take your example

1. Start tax year 2022/2023 with £150k already in a flexible ISA from the previous tax years
   
2. Withdraw £135k during tax year 2022/2023 Now the maximum cash you can invest is £20k for that tax year as the £135 was from previous tax years.
   
3. On the last day of tax year 2022/2023 have a short term loan for £135k (or £155k if you want to "bump up" allowance by using that years allowance) Which you can't do, as you can't reinvest from previous years only the tax year, so the maximum is £20k cash with it been deposited in the account for the sole purpose of getting the amount back at the start of the years. Not posible.
   
4. On the first day of the new tax year (2023/2024) repayment is made from ISA along with a small charge. Pointless because as soon as you remove the £20k in the following tax year you lose the ISA status of that money.
   

As @intalex pointed out, you are allowed to replace previous year subscriptions:

"Flexible ISA withdrawals are deemed to be firstly of current year subscriptions, and secondly of previous year funds. Replacements are deemed to be firstly of previous year funds, and secondly of current year subscriptions. Where subscriptions and withdrawals are processed on the same day, a net end of day position may be used where the manager’s system is unable to track the exact time of each transaction.

Managers do not need to establish or record whether a replacement subscription relates to current or previous year subscriptions (or any related income or growth).

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.

Where a flexible ISA has current year subscriptions only, any withdrawals over and above the amount subscribed – for example, income or capital growth - can only be replaced in that ISA.

Replacement of flexible ISA previous year funds must be made to the account from which the withdrawal was made, and in the same tax year."

From:

https://www.gov.uk/guidance/manage-isa-subscriptions-for-your-investors

Maybe where you got confused was with the second sentence in bold. Where it states the replacement must be made in the same tax year the withdrawal was made and to the same account.

someone

MoneySavingNovice said:

Sorry but that still doesn't work under the rules.

The flexible ISA amount is only applicable to the amount invested (max £20k cash) in that tax year. 

You're going across Tax years

So to take your example

1. Start tax year 2022/2023 with £150k already in a flexible ISA from the previous tax years
   
2. Withdraw £135k during tax year 2022/2023 Now the maximum cash you can invest is £20k for that tax year as the £135 was from previous tax years.
   
3. On the last day of tax year 2022/2023 have a short term loan for £135k (or £155k if you want to "bump up" allowance by using that years allowance) Which you can't do, as you can't reinvest from previous years only the tax year, so the maximum is £20k cash with it been deposited in the account for the sole purpose of getting the amount back at the start of the years. Not posible.
   
4. On the first day of the new tax year (2023/2024) repayment is made from ISA along with a small charge. Pointless because as soon as you remove the £20k in the following tax year you lose the ISA status of that money.
   

I'm sorry but it seems there is some gaps in understanding Flexible ISAs work. At the start of the tax year a high water mark is established. You can withdraw and then repay funds up to that amount within a tax year without touching your current year's allowance.

As an example I've personally done this and can confirm that it works. What's more Nationwide BS reports the amount you can still repay back in and I've seen amounts in excess of £20k, which would be impossible if Flexable ISAs worked in the way @MoneySavingNovice describes it.

In fact the only way behaviour like that been described is if between step 2 and 3 you transferred your ISA. The "high water mark" used by the new ISA manager will be the amount at the point of transfer.

someone

Nationwide says:

Withdrawing money paid in before the current tax year

You can withdraw funds from current and previous years' deposits and pay them back into a Nationwide cash ISA (within that tax year), without it counting towards your current year's ISA allowance.

https://www.nationwide.co.uk/savings/help/isa-flexibility-explained/