Withdrawing all/most of Cash ISA

Annabee

My husband and I each have Cash ISAs going back over the last few tax years.

Due to a house purchase we will be withdrawing most/all of this, probably during the summer.  I've called the provider, but managed to get cut off before all my questions could be answered. So I am asking on here:

1. When money is withdrawn, which tax year would it be taken from first?  The agent seemed to think it would be from the most recent tax year.

2. They said that if we start a new Cash ISA for the 25/26 tax year, and withdraw money, we then would be unable to add new funds in the same tax year.   I think that means that the ISA is not flexible, right?   So would we be better starting a different flexible ISA for 25/26 with a different provider?  Is that allowed? 

 We are keen to have the benefits of tax free saving, and although we may well use up all our savings for the house, we would hopefully be able to start saving again once we're settled in.

Thanks in advance for anyone who knows.

Kim_13

2. Indeed. Providers offering Flexible ISAs are listed in this article https://www.moneysavingexpert.com/savings/flexible-isas/ - but best to check the product info for the ISA you are interested in before applying to ensure that nothing has changed in the interim.

I’m not sure I understand 1 as it doesn’t seem to me that it would matter.

You might consider transferring the existing ISA to a Flexible ISA provider before withdrawing. Then when you make the withdrawal, provided that is on April 6 or later, you would have until April 5, 2026 to replace as much of it as possible rather than being limited only to your 25/26 allowance. Others will correct me if I am mistaken but I believe this is allowed so long as the money is replaced in the same ISA as it is withdrawn from.

Only £85K is FSCS protected in each institution so if you have more, it would be a good idea to do two separate transfers to non-linked institutions supporting Flexibke ISAs before withdrawing any money. But don’t take any out in this tax year if you can help it as that doesn’t give you very long to replace it. 

There is a tool here to find whether two institutions are linked or independent: https://www.moneysavingexpert.com/savings/safe-savings/

Mark_d

You cash ISA is an allowance of how much money you can save tax free each year.  It sounds like all your money has been going in to a single account.  I don't think your first question makes sense.

If you pay in £20k to a regular cash  ISA in 25/26 then you can't pay in any more, regardless of how much you withdraw...unless it is a flexible ISA.

Where would you save for the first few months of 25/26?
You want to save in cash so that it's readily accessible for your house purchase.  Whilst ISAs are tax free, don't assume that the net return is better than on a normal account where tax is deducted.

After you have bought the house, in my opinion cash ISAs are far from the best option.  Personally I use S&S ISA but overpayments in to your mortgage would also be a reasonable method of saving

slinger2

Not sure I fully understand the issue. Unless you're planning to replace some of the money you withdraw in the same tax year (ie 25/26) I'm not sure it really makes any difference.

If you are thinking of replacing some of the money in 25/26 then you want to make sure that the money is in a "flexible" ISA before you withdraw the money. Remember that flexibility only lets you replace money you've withdrawn in the same tax year. If you're thinking of replacing the money in later tax years eg 26/27, a flexible ISA doesn't help you.

If you withdraw from a flexible Cash ISA that contains just "new" (ie 25/26) money, you could replace that withdrawn money in 25/26 without using any more of the your 25/26 ISA allowance.

If you withdraw from a flexible Cash ISA that contains just "old" (ie 24/25 and earlier) money, you could replace that withdrawn money in 25/26 without using any of the your 25/26 ISA allowance, in exactly the same way.

You can also withdraw from a flexible Cash ISA that contains both "old" (ie 24/25 and earlier) and "new" (ie 25/26) money but it can all get quite complicated. The rule is that when you "withdraw" from such a Cash ISA you take out the "new" money first and when that's all gone you start to withdraw the "old" money. If you "replace" some or all of that money in 25/26 its deemed to be in the reverse order, firstly its old money and when that's used up then its the new money that's replaced. eg ISA has £30k of "old" money, add £10k of "new" money (so now £40k in there). If you withdraw £30k that's the £10k of new money and £20k of old money. Now suppose you replace £10k later in 25/26, that would be £10k of old money replaced.

Probably I've answered questions you didn't ask, sorry for that

Andy7856

Who is your provider? Before taking out I would consider moving to a flexible ISA provider to then give you maximum flexibility to than place back any surplus monies later in the (same) tax year.  Perhaps you realise you have taken too much out, or you get a bonus at work.      

Annabee

Thanks Andy7856. It's with Virgin Money. I see that according to the link that Kim_13 has provided, Virgin also do flexible ISAs, so maybe I should just give them a call and arrange to transfer all my ISA money to a flexible one. However I can't  seem to identify which of their ISAs are flexible by looking on their website though, and the interest rate is the crucial thing.

The flexible one will only be for the current tax year though, right? Which will be 2025/26 in my case. I don't suppose you can go back and refill ISA amounts from previous years can you?

I am wondering if it's simpler to have the new flexible ISA for 2025/26 with a different institution and just leave the Virgin ones as they are? 

slinger2

No you can't "refill ISA amounts from previous years".

The main rule for flexible ISAs is that you can only replace money that you withdrew from the same ISA earlier in the same tax year.

Some people seem to think it only applies to this year's contributions, but that's not true. If for instance you have a flexible ISA that you contributed to 5+ years ago but not since, you could withdraw money from it in 25/26 and replace that later in 25/26 and it won't count towards your allowance for 25/26.

So remember, it doesn't matter when the money went in. What matters is that you can only replace money that you withdrew earlier in the current tax year (and then, only to the same ISA and only if it's a flexible ISA)

jimjames

Annabee said:

The flexible one will only be for the current tax year though, right? Which will be 2025/26 in my case. I don't suppose you can go back and refill ISA amounts from previous years can you?

I'm not quite sure what your question was but the answer could be yes you can refill if it's done in the same tax year that the money is withdrawn.

Say you have a flexible ISA with £50k in it, if you withdraw £45k of that money after 6th April then you have until 5th April the following year when you can replace that £45k into the flexible ISA without affecting your allowances.

Andy7856

Annabee said:

Thanks Andy7856. It's with Virgin Money. I see that according to the link that Kim_13 has provided, Virgin also do flexible ISAs, so maybe I should just give them a call and arrange to transfer all my ISA money to a flexible one. However I can't  seem to identify which of their ISAs are flexible by looking on their website though, and the interest rate is the crucial thing.

The flexible one will only be for the current tax year though, right? Which will be 2025/26 in my case. I don't suppose you can go back and refill ISA amounts from previous years can you?

I am wondering if it's simpler to have the new flexible ISA for 2025/26 with a different institution and just leave the Virgin ones as they are? 

Hi, At the moment the only ISA's on Virgin Website for sale appears to be fixed or a limited access. If you have an Easy Access ISA already then I would think you can still contribute to it.   If you say interest rate is important than personally I'd look elsewhere as better deals and transfer the full amount to an flexible provider.  So in each tax year you can take out the full balance, then pay back not only the full balance (or portion of) PLUS the ISA allowance.    For example you have £100k in your ISA  (from past tax years) in 2025/26 - within 2025/26 you can take out the £100k, then pay back in £120k ie your original ISA balance of £100k, PLUS the new 2025/26 allowance of £20k.

Annabee

Thanks, that sounds ideal. Now to hunt down a flexible ISA that also pays a good rate!

I am amazed that apparently I can take out my full ISA savings from previous years, yet pay it back in within one tax year I never imagined that - I thought I would only be able to pay back in the £20k allowance for the current tax year.

Perhaps I have been thinking of it wrongly - in my head each year's ISA was a separate little pot  and once that year had passed you can either leave the money in, withdraw it if you need it, or do a transfer to a new provider.