Tax Liability Regarding Terminal Illness

DRS1

I confess I am not quite clear what your wife is doing with her ISA. You say she cashes it in each year. Does that mean she has £20k in an ISA in a one year fixed rate ISA paying say 4% so at the end of the year the ISA stands at £20800. She then takes all £20800 out of the ISA keeps the £800 and puts the £20k into a new ISA using up this year's ISA allowance?

I would hope not. That would be wasting the ISA allowance rather a lot.

If it is what she has done in this tax year (26/7) then she could not add the £8k to an ISA this tax year (although I made up the £20k figure as it is the current ISA allowance. If she is below the ISA allowance by £8k then she can contribute the £8k to an ISA this year.)

What I hope she is actually doing is transferring the existing ISA to a new one each year. A transfer of last year's ISA to a new one this year does not eat up this year's ISA allowance.

Of course she could be using these new flexible ISAs and playing about with the ISA allowance that way. If that is what she is doing then ignore what I have said because flexi ISAs go over my head. I could almost follow it when they said you had to put the money you took out back into the same ISA in the same tax year as you took it out but the new rules where you can take out of one ISA and put it "back" in a different ISA leave me a bit lost.

NorthernGeezer_2

She only has £20k to invest in total, no other capital, so the year on year ISA allowance is not applicable. The reason for chopping and changing is so she can keep the interest and re-invest the £20k in the best rate ISA for that year. I take your point regarding the transfer though but she finds it easier to close one and open another.

DRS1

Oh and just to say the idea of taking the TFLS and putting it in an ISA was for where you didn't have a use for the TFLS. If she wants to "pocket" it (or spend it on new shoes) then it doesn't need to go anywhere near the ISA.

All I was doing was suggesting that you could move the money from one tax free environment to another tax free environment.