Flexible cash ISAs

AmityNeon

masonic said:

AmityNeon said:

masonic said:

AmityNeon said:

masonic said:

AmityNeon said:

eskbanker said:

AmityNeon said:

As long as the £20,000 limit is never breached at any point in the year, I don't see HMRC making more work for themselves by kicking up a fuss just because funds withdrawn from one flexible ISA weren't replaced in the same ISA. It's unnecessary administration for all parties involved and currently an utter mess from its introduction to the inconsistent application across different providers, so I'm just going to ignore the rules this tax year, make false ISA declarations if necessary and see how I'm punished later.

Are you saying that you made a replacement subscription to a different ISA early in the tax year (the rule changed after a few weeks as I recall), or that you're planning to do so even after the change? It would seem unreasonable for there to be any penalising of the former but the latter may be harder to justify, albeit not impossible in some circumstances....

That depends how a "replacement subscription" is strictly defined. I've certainly withdrawn funds from one flexible ISA, and subsequently deposited funds in a different flexible ISA (amongst other accounts, e.g. regular savers, easy access accounts and other non-flexible ISAs).

This is only an issue if the total you have subscribed (including money you have moved from one ISA to a different ISA as a subscription) exceeds £20k.

Exactly, hence why I've ignored this new hastily-introduced replacement rule because it's ludicrous taken at face value. Admittedly, I haven't cared to investigate whether there are qualifiers or exceptions. I also don't "move" money from one ISA to another; once money has been withdrawn, that's it — it becomes diluted into the general pool of accessible cash. What I do is keep track of subscription totals for each ISA (not just their current balances) and ensure that the combined ISA total doesn't exceed £20K. I'd probably initiate transfer procedures if one ISA needed a higher allowance but it's not a consideration with which I need concern myself at this moment in time, or this tax year.

The change has had the effect of making flexible ISAs somewhat more like non-flexible ISAs. So if you pay £20k into flexible ISA A, withdraw £10k and then later pay £10k into ISA B, you have breached the allowance by £10k. What provider A should be doing is listing the total subscriptions as £20k throughout, but separately listing a flexible allowance of £10k after the flexible withdrawal, as that can be repaid into that ISA and that ISA alone during the same tax year. They should then be reporting £20k subscriptions used to HMRC whether or not the £10k is replaced. While provider B would report £10k allowance used as it always would. This would prevent someone opening ISAs A, B, C, D, and paying £20k into each, withdrawing £15k from each just before the end of the tax year to avoid detection.

We do not yet know whether or not this will happen in practice (I suspect not).

Providers should just report full daily subscription histories for all ISAs so HMRC can automatically compute whether the annual allowance was ever breached at any point in the tax year, but that's probably asking for too much.

I agree entirely with this solution, and there were murmurings that something like that, or a real time reporting system, was in the works. But given the state of the "making tax digital" initiative and the promise vs reality for Personal Tax Accounts, progress is likely to be glacially slow if anything is done at all.

We still have to contend with daily cut-off times and weekends delaying so many automated processes. Even SMS overdraft notifications are batch delayed by several hours and sent when accounts are no longer even in overdraft. I think we'll be long gone from this world before accurate real-time reporting of annual tax-free subscriptions is even a remote possibility... let's just pass a law nobody even notices! 😂

where_are_we

Purplefudge13 - "are you missing something". In view of the subsequent posts about the confusion of the interpretation of the rules and the Plum ISA having various conditions I would advise you to stick with your Trading 212 ISA.

If you are serious about proceeding, check out the many negative reviews of Plum on MSE forums.

Frequentlyhere

Just to revive this old thread, as I too was considering withdrawing from a flexible ISA to subscribe to an ISA with another provider..

I found the formal HMRC guidance, which at first seems an unequivocal 'no', saying:

"Replacement of flexible ISA funds from the previous year, current year or both must be made:

• to the account from which the withdrawal was made
• in the same tax year"

However, the very next paragraph goes on to say:

"Investors can hold multiple ISAs and can use withdrawn flexible ISA funds to subscribe to other non-flexible ISAs.  This will affect the overall ISA subscription limit and investors must make sure it is not exceeded."

Which seems to me a direct contradiction of what was said before, suggesting I can in fact withdraw funds to subscribe to another ISA. What am I missing here?

slinger2

The rules on "flexible" ISAs changed on 6 Apr 2024 (as did a number of other ISA rules). The trouble is that you can find lots of old information through search engines.

From 6 Apr 2024 you can only "replace" money into the account that you "withdrew" it from. And this needs to be done in the same tax year (to take advantage of flexibility aspect).

Frequentlyhere

Thanks Slinger, though this isn't some random old link I found but the HMRC "How to manage ISA subscriptions" page, updated on 9th October 2024.

If this page from HMRC, updated since these apparent changes, isn't the authoratitive source then, genuinely, what is?  

edit: Looking at the update history, I am wondering whether they made a mistake in not deleting that latter paragraph when they added in the bit about it being to the same account back in April 2024.

eskbanker

Frequentlyhere said:

Just to revive this old thread, as I too was considering withdrawing from a flexible ISA to subscribe to an ISA with another provider..

I found the formal HMRC guidance, which at first seems an unequivocal 'no', saying:

"Replacement of flexible ISA funds from the previous year, current year or both must be made:

• to the account from which the withdrawal was made
• in the same tax year"

However, the very next paragraph goes on to say:

"Investors can hold multiple ISAs and can use withdrawn flexible ISA funds to subscribe to other non-flexible ISAs.  This will affect the overall ISA subscription limit and investors must make sure it is not exceeded."

Which seems to me a direct contradiction of what was said before, suggesting I can in fact withdraw funds to subscribe to another ISA. What am I missing here?

There's no contradiction there as such - the point being made is that once funds are withdrawn from a flexible ISA, they can either be returned to the same ISA (which doesn't count towards the current year's contribution limit) or they can be deposited into another ISA as new money, i.e. counting towards the current year limit, hence the wording after the last bolded section.

Frequentlyhere

eskbanker said:

There's no contradiction there as such - the point being made is that once funds are withdrawn from a flexible ISA, they can either be returned to the same ISA (which doesn't count towards the current year's contribution limit) or they can be deposited into another ISA as new money, i.e. counting towards the current year limit, hence the wording after the last bolded section.

Ah, perhaps I misunderstood it then.

Does that mean that if I, say, had a £20k flexible cash ISA, withdrew £10k from it, and then deposited the £10k elsewhere that I would in the eyes of HMRC have tried to subscribe £30k to my overall ISA allowance and be oversubscribed?

I suppose that makes sense, though it doesn't seem terribly well explained. I thought that that bit just meant I need to keep track of things myself to make sure I didn't exceed £20k deposited across multiple ISA's at any point in time.

eskbanker

Frequentlyhere said:

eskbanker said:

There's no contradiction there as such - the point being made is that once funds are withdrawn from a flexible ISA, they can either be returned to the same ISA (which doesn't count towards the current year's contribution limit) or they can be deposited into another ISA as new money, i.e. counting towards the current year limit, hence the wording after the last bolded section.

Ah, perhaps I misunderstood it then.

Does that mean that if I, say, had a £20k flexible cash ISA, withdrew £10k from it, and then deposited the £10k elsewhere that I would in the eyes of HMRC have tried to subscribe £30k to my overall ISA allowance and be oversubscribed?

I suppose that makes sense, though it doesn't seem terribly well explained. I thought that that bit just meant I need to keep track of things myself to make sure I didn't exceed £20k deposited across multiple ISA's at any point in time.

Yes, it means what you now understand it to - as you say, the wording may not be brilliant, which, as above, will be due to the rules having changed from this tax year, so the document was tweaked and maybe didn't convey all the nuances correctly.

It was a bit of a mixed message, in that that rules on flexibility were tightened at the same time that the wider rules on concurrent funding of ISAs of the same type were being relaxed, so you can now spread your £20K of new money around as many ISAs as you like, but anything withdrawn from a flexible one needs to go back to the same place unless you're OK with it being treated as new money elsewhere (subject to enough headroom being available)....

Frequentlyhere

Ok. Thank you for (again!) jumping in to clarify. Seems nearly a full time job for you the amount I've seen your responses popping up :-)

slinger2

Frequentlyhere said:

eskbanker said:

There's no contradiction there as such - the point being made is that once funds are withdrawn from a flexible ISA, they can either be returned to the same ISA (which doesn't count towards the current year's contribution limit) or they can be deposited into another ISA as new money, i.e. counting towards the current year limit, hence the wording after the last bolded section.

Ah, perhaps I misunderstood it then.

Does that mean that if I, say, had a £20k flexible cash ISA, withdrew £10k from it, and then deposited the £10k elsewhere that I would in the eyes of HMRC have tried to subscribe £30k to my overall ISA allowance and be oversubscribed?

I suppose that makes sense, though it doesn't seem terribly well explained. I thought that that bit just meant I need to keep track of things myself to make sure I didn't exceed £20k deposited across multiple ISA's at any point in time.

That's true if the "£20k flexible cash ISA" contained this tax year's £20k subscription. If however you hadn't subscribed anything to the ISA in this tax year (ie it was from previous tax years) it would be somewhat different. Putting the £10k into an ISA as part of this year's subscription would then ok (assuming you haven't used up more than £10k of this year's allowance elsewhere) and you'd even be able to replace the £20k later in the tax year.