Drip-feed from Cash ISA to S&S ISA

Umiamz

In the new tax year I plan to add £10,000 to a fixed Cash ISA and £10,000 to my existing S&S ISA (HSBC GIC).

Under the new rules, am I allowed to additionally open a flexible easy-access Cash ISA, fund it with the £10,000 intended for the S&S ISA, then use that to drip-feed the S&S ISA?

Thanks in advance for any replies.

Umiamz

To answer my own question having looked at the Flexible ISA rules, I'm pretty sure that I can do this.

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Flexible ISA with current tax year funds only

Money withdrawn from a flexible ISA will be from current year funds only and can be replaced before the end of the same tax year without using any more of the investor’s annual subscription allowance.

The replacement subscription could be to another ISA, but the investor must not be subscribing to another ISA of the same type in the tax year as a result of the replacement.

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So, because the flexible easy-access Cash ISA will only contain current year funds, I can withdraw from this and pay it into my S&S ISA because that is not the same type of ISA (although I believe that will change for 2024/25).

Have I interpreted that correctly?

FrugalFredi

I'm looking to do something similar. The article below agrees with you but says the s&s isa must also be a flexible isa.

https://www.moneysavingexpert.com/savings/flexible-isas/

Umiamz

FrugalFredi said:

I'm looking to do something similar. The article below agrees with you but says the s&s isa must also be a flexible isa.

https://www.moneysavingexpert.com/savings/flexible-isas/

I don't think that's the case. From the government's own website is this worked example:

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Mr Andrews subscribes £10,000 to his flexible cash ISA on 6 April 2017.

On 12 May he withdraws £2,000. His ‘net’ current year subscriptions at

this point are £8,000 and he can use the balance of his annual

subscription limit of £12,000 (£20,000 less £8,000) as he chooses

between his cash ISA and any stocks and shares, innovative finance or

Lifetime ISA he subscribes to in 2017-18.

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Note that it says any ISA other than Cash ISA. Also, there's no such thing as a Flexible Lifetime ISA, so it appears that only the source (i.e. the Cash ISA) has to be flexible, as that is what determines your 'net' current year subscriptions.

masonic

Only the ISA used to make flexible withdrawals needs to be flexible. When current year subscriptions are flexibly withdrawn from one ISA, they can effectively be replaced in any other valid ISA for the year. The flexible withdrawal (current year subscriptions only) has the effect of increasing your global ISA allowance for that year.

See https://www.gov.uk/guidance/manage-isa-subscriptions-for-your-investors#flexible-isas

(the one ISA of each type per tax year rule will no longer apply)

Umiamz

Thanks - that's how I interpreted it, too. Looks like I'm good to go, in that case.

masonic

@Umiamz @FrugalFredi unfortunately HMRC has updated its guidance as of 30th April and no longer permits any flexibly withdrawn subscriptions to be replaced in a different ISA than the one it was taken from. To do as you wish would now require a series of partial transfers (if this new interpretation is enforced).

(as linked above)

Umiamz

masonic said:

@Umiamz @FrugalFredi unfortunately HMRC has updated its guidance as of 30th April and no longer permits any flexibly withdrawn subscriptions to be replaced in a different ISA than the one it was taken from. To do as you wish would now require a series of partial transfers (if this new interpretation is enforced).

(as linked above)

That’s ridiculous. How can they suddenly change their minds over how flexible ISAs work? For the past few years the guidance has stated that you can pay back into any current year ISA. There’s even a worked example on the HMRC website of somebody doing exactly that!

It’s not clarification, it’s a complete change of direction.

Umiamz

It looks like my only option if I want to continue to drip-feed my S&S ISA is to transfer my Chip ISA to my S&S ISA’s uninvested cash account and then use that as the source. Unfortunately, the uninvested cash account doesn’t pay interest (although the maximum amount that I could earn with Chip is easily lost or gained daily in my S&S ISA!).

I haven’t been able to find an easy-access cash ISA that allows partial transfers of current year subscriptions.

masonic

What a mess! Until such time as ISA providers update their systems, someone would need to open 12 easy access ISAs so that they can transfer in one per month. That or have more of their cash savings exposed to tax through the tax year.

It all seems very knee-jerk, I wonder if HMRC has thought through that people will have already started moving money between ISAs this tax year. Suspect they will have to forgive any such actions this tax year, except where there is a clear abuse of the overall £20k limit (which is already prohibited) - in which case why change the rules so suddenly?

badger09

I agree. It’s a complete & utter shambles. I suspect the initial rule change was introduced without full consultation with providers about implementation. I wonder how long it will take the press to pick up on it?