ISA guru question

pecunianonolet

Hi,

I have maxed out my full ISA allowance for this year with the Virgin 4.25% 1y fix so can't put any more in but OH has full allowance left. I technically have 30 days to fund the Virgin ISA now that it is NLA and could put more in on the 6th April but that would be locked away for the rest of the term.

OH is standard rate, I am higher rate tax payer so my ISA benefit is larger and I will have maxed out next tax years PSA already today with future interest coming in from other fixes. So every penny in accounts under my name at the moment is subject to tax. Any additional savings interest next year on top of already calculated interest from the fixes I have is subject to tax too.

We may or may not need access to the funds later in the year so locking my cash away on the 6th into the Virgin ISA isn't really an option. I could open an easy access ISA so funds are available but that would count against my allowance next year. I think I would need a flexible ISA, which doesn't count incoming and outging cash so I will always keep the full 20k afloat. 

However, we were now thinking to lock cash away in OH name, full allowance left this year as it feels not right not to use it. 

We were now thinking to put cash in an easy access ISA account so we take advantage of this years allowance and have it shielded from tax, at least to bridge it over into the new tax year to buy us a little time.

Am I right in my thinking that a flexible ISA doesn't make sense in OH name as the flexibility only works within the tax year?

If we use an easy access ISA in OH name and put 5k in, what is the situation next tax year?

I know we would be able to make next year a transfer to a flexible ISA of those 5k and put another 20k in of new allowance. Would we also be able to make a transfer to provider A and open another ISA with provider B and put the 20k with provider B?

If we transfer the 5k to a flexible ISA next year, and we would take 2k out, would we be able to put the 2k back in at a later point and still have the 20k allowance or would the 2k taken out and put back in count as new money and the allowance would drop to 18k?

Is any of the above making any sense or should I transfer the cash over to the OH and distribute from there in various high reg savers, we track OH interest and find the break even point when PSA is maxed out and move to an ISA then and aceept the lost opportunity this year?

We have ca. 3.5k each month on fresh cash coming in, more if we spend less, and even more if prices not keep rising further.

I am trying to minimize tax by maximising profits overall and find the right solution with it. 

nottsphil

I've only read the first half but I think you need a flexible ISA like this one from YBS, although you need to have been a member for a year. (NB the 2 rates will both be increased by 0.25% in early April.)

masonic

pecunianonolet said:

Am I right in my thinking that a flexible ISA doesn't make sense in OH name as the flexibility only works within the tax year?

It does work within the tax year, but that's each tax year, not just the first. The money need only be there for a few days between tax years to preserve the allowance. So it can be deployed elsewhere most of the time. This only really prevents you from locking the money away outside the ISA for a year or more.

pecunianonolet said:

If we use an easy access ISA in OH name and put 5k in, what is the situation next tax year?

I know we would be able to make next year a transfer to a flexible ISA of those 5k and put another 20k in of new allowance. Would we also be able to make a transfer to provider A and open another ISA with provider B and put the 20k with provider B?

Yes

pecunianonolet said:

If we transfer the 5k to a flexible ISA next year, and we would take 2k out, would we be able to put the 2k back in at a later point and still have the 20k allowance or would the 2k taken out and put back in count as new money and the allowance would drop to 18k?

The £2k, if replaced within the same tax year, would not count towards your £20k allowance.

pecunianonolet said:

Is any of the above making any sense or should I transfer the cash over to the OH and distribute from there in various high reg savers, we track OH interest and find the break even point when PSA is maxed out and move to an ISA then and aceept the lost opportunity this year?

We have ca. 3.5k each month on fresh cash coming in, more if we spend less, and even more if prices not keep rising further.

I am trying to minimize tax by maximising profits overall and find the right solution with it. 

If you have sufficient money coming in over the next 12 months, then you could make the ISA contribution now, flexibly withdraw after 5th April, then use the money to fund the regular savers. Then make the replacement subscriptions from income over the course of the tax year. To some extent you will then have your cake and eat it. Whether your OH benefits from a cash ISA longer term will depend on future rates, changes to income, etc, but this way you can hedge your bets for the next tax year.

jimjames

pecunianonolet said:

If we use an easy access ISA in OH name and put 5k in, what is the situation next tax year?

Also bear in mind if you put the money in OH name then it's their money to do as they wish. The risks of that may vary depending on your relationship but might be worth being aware of.

pecunianonolet

Thank you @masonic for the advice. Apologies, but my brain has not fully digested all of this yet. Let me put a timeline together below, which hopefully helps me to get my head round.

1st of April: Easy Access ISA opened with bank A and funded with 5k (15k remaining allowance forfeited)

6th of April: Easy Access ISA with bank A is transferred to a Flexible Easy Access ISA with bank B. 
6th of April: New 20k ISA allowance available for tax year 23/24 and 20k can be deposited with any ISA provider and product available

2nd of May: Withdraw £2000 from flexible ISA, leaving £3000 in flexible ISA. The £2000 go into 8 x £250 regular savers. 
1st June:     Withdraw £2000 from flexible ISA, leaving £1000 in flexible ISA. The £2000 go into 8 x £250 regular savers.

30th June: Deposit £4000 back into flexible ISA from non ISA easy access account. Balance of original £5000 regained. Reg savers funded from salary income moving forward.

1st July: Interest tracker document signals annual PSA fully utilised. Transfer £5000 from Flexible Easy Access ISA into a 1y fixed ISA. 

2nd July: Move £20.000 from non ISA easy access account into 1y fixed ISA  --> £5000 from last year + £20.000 current year allowance shield 25k from tax 

--> The key point for me is that I can flexibly take the 5k back out and make it work with the higher "open" market rates for a while and not lose the 20k annual allowance. 

In the following tax year once the fix is over, you move into flexible ISA again, take out the 25k (or whatever is required) work with it until the end of the tax year, put it back in and add 20k from the then available allowance.

That way the money can work, for a while on the "open" market but due to the flexibility the ISA status is never given up as long as everything is back in the ISA account before year end. In the following year it would already be 55k if the same pattern would be followed. 

The above is obviously a very long timeline and rates have probably started to drop again during summer so we have to ignore the rates and how sensible that appraoch is for the moment. I am more interested in the technicalities and ISA rules. 

@jimjames Thanks for pointing out and we are fully aware of it.

masonic

Yes, that will all work. The overriding principle is that you can use ISA flexibility to freely withdraw and replace funds just like an easy access savings account, and providing it is all paid back in by 5th April it is as if it had never been removed.

pecunianonolet

masonic said:

Yes, that will all work. The overriding principle is that you can use ISA flexibility to freely withdraw and replace funds just like an easy access savings account, and providing it is all paid back in by 5th April it is as if it had never been removed.

Brilliant, that's fantastic news! Thank ou so much.

refluxer

Why are you opening the ISA with bank A and then transferring it to B ? Seems like an unnecessary step unless I'm missing something ? Is there a reason why you can't open a flexible ISA with bank B this tax year to kick things off ?

35har1old

nottsphil said:

I've only read the first half but I think you need a flexible ISA like this one from YBS, although you need to have been a member for a year. (NB the 2 rates will both be increased by 0.25% in early April.)

Need to be a member

pecunianonolet

refluxer said:

Why are you opening the ISA with bank A and then transferring it to B ? Seems like an unnecessary step unless I'm missing something ? Is there a reason why you can't open a flexible ISA with bank B this tax year to kick things off ?

It surely is possible but I wanted to make sure I address this step as well, just in case. Indeed, going with B in te first place is the easier path. I need to reasearch first, what ISA's are flexible and what rates are out there. Things move so fast at the moment

refluxer

pecunianonolet said:

refluxer said:

Why are you opening the ISA with bank A and then transferring it to B ? Seems like an unnecessary step unless I'm missing something ? Is there a reason why you can't open a flexible ISA with bank B this tax year to kick things off ?

It surely is possible but I wanted to make sure I address this step as well, just in case. Indeed, going with B in te first place is the easier path. I need to reasearch first, what ISA's are flexible and what rates are out there. Things move so fast at the moment

I would start with the highest-paying Easy Access Cash ISAs and work your way down the list until you find one that's flexible. Unfortunately, it doesn't look like even the advanced search on Moneyfacts allows you to filter for flexible ISAs.

The highest-paying Easy Access Cash ISAs (without a notice period) are currently 3.20% with Cynergy or Santander but they aren't flexible, however... if you were happy to limit yourself to 3 withdrawals per tax year, the Paragon Triple Access Cash ISA pays the same rate and does appear to be flexible.