What happens to ISA Allowance if you spend some of the capital?

Phillipo27

I have some savings that I need to spend in April 25 (in new tax year) about £4000.  If I open up a cash ISA now - ie in the 24/25 tax year - then spend most of the money in the 25/26 tax year - ie end April 25.  What happens to my 24/25 allowance - can I top it up when I have saved more money? even though this top up will fall in the 25/26 tax year?

eskbanker

If you use a flexible ISA, then you can withdraw and replace again (in the same tax year) without it counting towards the current year allowance, but this allowance resets with a fresh £20K limit each tax year.

Phillipo27

Thanks for this - so there's really not much point me taking out ISa for this year's allowance as I'm going to spend the money next tax year and lose it

p00hsticks

Phillipo27 said:

Thanks for this - so there's really not much point me taking out ISa for this year's allowance as I'm going to spend the money next tax year and lose it

The only point would be if you find an ISA that gives better rates than a standard easy access savings account

Kim_13

@Phillipo27

You say it’s in the new tax year that you need to spend the money, so pay £4,001 into a Flexible ISA that has a minimum balance of £1 now using 24/25’s allowance and withdraw the £4,000 on 6 April or later. This then gives you until 5 April 2026 to pay that £4,000 back into the ISA you withdrew it from (which is fine, as you’ve kept it open with £1.) It’s essential that even if the ISA you have becomes uncompetitive, you do not transfer it elsewhere using the ISA transfer process until you have repaid that £4,000 - as transferring an ISA elsewhere removes any flexible ISA allowance that had been built up.

This would then leave your 2025/2026 allowance untouched, which is £20,000 unless there is a last minute change at the Spring Statement.

Some pointers as to which ISAs are Flexible ISAs in this guide: https://www.moneysavingexpert.com/savings/flexible-isas/ . But be sure to check the terms of your selected product carefully in case anything has changed as you must get a Flexible one in order for this to work.

Phillipo27

Kim_13 said:

@Phillipo27

You say it’s in the new tax year that you need to spend the money, so pay £4,001 into a Flexible ISA that has a minimum balance of £1 now using 24/25’s allowance and withdraw the £4,000 on 6 April or later. This then gives you until 5 April 2026 to pay that £4,000 back into the ISA you withdrew it from (which is fine, as you’ve kept it open with £1.) It’s essential that even if the ISA you have becomes uncompetitive, you do not transfer it elsewhere using the ISA transfer process until you have repaid that £4,000 - as transferring an ISA elsewhere removes any flexible ISA allowance that had been built up.

This would then leave your 2025/2026 allowance untouched, which is £20,000 unless there is a last minute change at the Spring Statement.

Some pointers as to which ISAs are Flexible ISAs in this guide: https://www.moneysavingexpert.com/savings/flexible-isas/ . But be sure to check the terms of your selected product carefully in case anything has changed as you must get a Flexible one in order for this to work.

Ah - so you are saying different to eskbanker - you are saying that if I have a flexible isa - i can add the money this tax year - remove it next tax year ie on 6 April (or later) but still then have rest of next tax year to pay it back without losing any of 205/26 allowance and keeping my 2024/25 allowance at £4001.

Kim_13

Phillipo27 said:

Kim_13 said:

@Phillipo27

You say it’s in the new tax year that you need to spend the money, so pay £4,001 into a Flexible ISA that has a minimum balance of £1 now using 24/25’s allowance and withdraw the £4,000 on 6 April or later. This then gives you until 5 April 2026 to pay that £4,000 back into the ISA you withdrew it from (which is fine, as you’ve kept it open with £1.) It’s essential that even if the ISA you have becomes uncompetitive, you do not transfer it elsewhere using the ISA transfer process until you have repaid that £4,000 - as transferring an ISA elsewhere removes any flexible ISA allowance that had been built up.

This would then leave your 2025/2026 allowance untouched, which is £20,000 unless there is a last minute change at the Spring Statement.

Some pointers as to which ISAs are Flexible ISAs in this guide: https://www.moneysavingexpert.com/savings/flexible-isas/ . But be sure to check the terms of your selected product carefully in case anything has changed as you must get a Flexible one in order for this to work.

Ah - so you are saying different to eskbanker - you are saying that if I have a flexible isa - i can add the money this tax year - remove it next tax year ie on 6 April (or later) but still then have rest of next tax year to pay it back without losing any of 205/26 allowance and keeping my 2024/25 allowance at £4001.

I used the £4,001 figure on the assumption that you do not have an ISA currently so would need the extra £1 to keep the ISA open (as if the ISA is closed you would not be able to use the £4,000 Flexible ISA allowance.) Your Flexible allowance is the exact figure that you withdraw from a qualifying ISA, valid until the end of the tax year in which it is withdrawn.

In 25/26 my understanding is that you would have your £20,000 allowance plus a £4,000 Flexible allowance created by withdrawing on 6 April or later - thereby having all or most of the tax year to replace it before whatever remains is lost at the start of 26/27.

Of course if you would pay £20,000 or less into ISAs during 25/26 then there is no benefit to jumping through these hoops as you would have enough current year allowance remaining to cover that.

Edit: This situation is covered in example 2 of this guide from Newbury BS, where ~£4k paid in now will soon be a previous year subscription: https://product.newbury.co.uk/FLEXISA.pdf

eskbanker

Phillipo27 said:

Kim_13 said:

@Phillipo27

You say it’s in the new tax year that you need to spend the money, so pay £4,001 into a Flexible ISA that has a minimum balance of £1 now using 24/25’s allowance and withdraw the £4,000 on 6 April or later. This then gives you until 5 April 2026 to pay that £4,000 back into the ISA you withdrew it from (which is fine, as you’ve kept it open with £1.) It’s essential that even if the ISA you have becomes uncompetitive, you do not transfer it elsewhere using the ISA transfer process until you have repaid that £4,000 - as transferring an ISA elsewhere removes any flexible ISA allowance that had been built up.

This would then leave your 2025/2026 allowance untouched, which is £20,000 unless there is a last minute change at the Spring Statement.

Some pointers as to which ISAs are Flexible ISAs in this guide: https://www.moneysavingexpert.com/savings/flexible-isas/ . But be sure to check the terms of your selected product carefully in case anything has changed as you must get a Flexible one in order for this to work.

Ah - so you are saying different to eskbanker - you are saying that if I have a flexible isa - i can add the money this tax year - remove it next tax year ie on 6 April (or later) but still then have rest of next tax year to pay it back without losing any of 205/26 allowance and keeping my 2024/25 allowance at £4001.

Not sure how you're concluding it's different - with a flexible ISA, you can withdraw as much as you like and replace it within the same tax year without affecting the current year's contribution allowance, which is said in both posts?

Phillipo27

eskbanker said:

Phillipo27 said:

Kim_13 said:

@Phillipo27

You say it’s in the new tax year that you need to spend the money, so pay £4,001 into a Flexible ISA that has a minimum balance of £1 now using 24/25’s allowance and withdraw the £4,000 on 6 April or later. This then gives you until 5 April 2026 to pay that £4,000 back into the ISA you withdrew it from (which is fine, as you’ve kept it open with £1.) It’s essential that even if the ISA you have becomes uncompetitive, you do not transfer it elsewhere using the ISA transfer process until you have repaid that £4,000 - as transferring an ISA elsewhere removes any flexible ISA allowance that had been built up.

This would then leave your 2025/2026 allowance untouched, which is £20,000 unless there is a last minute change at the Spring Statement.

Some pointers as to which ISAs are Flexible ISAs in this guide: https://www.moneysavingexpert.com/savings/flexible-isas/ . But be sure to check the terms of your selected product carefully in case anything has changed as you must get a Flexible one in order for this to work.

Ah - so you are saying different to eskbanker - you are saying that if I have a flexible isa - i can add the money this tax year - remove it next tax year ie on 6 April (or later) but still then have rest of next tax year to pay it back without losing any of 205/26 allowance and keeping my 2024/25 allowance at £4001.

Not sure how you're concluding it's different - with a flexible ISA, you can withdraw as much as you like and replace it within the same tax year without affecting the current year's contribution allowance, which is said in both posts?

So sorry I think I have got confused!

Within the words  'If you use a flexible ISA, then you can withdraw and replace again (in the same tax year) ' I (perhaps wrongly) assumed that you use (ie open), withdraw and replace all within the same tax year.  

But in the wording 'with a flexible ISA, you can withdraw as much as you like and replace it within the same tax year without affecting the current year's contribution allowance' I have assumed that you can open an ISA one tax year and withdraw and replace in another tax year without affecting allowances in the year that you opened or the year that you withdrew and replaced.

That's how I concluded they were different.  If you are both saying I can invest an amount in 2024/25 (say £4001) - In 2025/26 withdraw (£4000) after 6 April and replace in say May - this would mean paying new funds into this account in the 2025/2026 tax year.  But if that leaves my 2024/25 allowance at £4001 and I am still free to invest the full £20,000 in 2025/2026 tax year that is great!

Thank you for you help with this

slinger2

As noted, the important thing about a flexible ISA is that you need to replace the money in the same tax year that you withdrew it, to avoid the replacement counting as new money. Whether it contained last year's money or this year's or has just been transferred in or whatever doesn't really matter.

eskbanker

Phillipo27 said:
If you are both saying I can invest an amount in 2024/25 (say £4001) - In 2025/26 withdraw (£4000) after 6 April and replace in say May - this would mean paying new funds into this account in the 2025/2026 tax year.

Still not sure you've fully understood - the whole point of flexible ISAs is that replacing flexibly-withdrawn money isn't treated as paying new funds into the account.

Phillipo27 said:
But if that leaves my 2024/25 allowance at £4001 and I am still free to invest the full £20,000 in 2025/2026 tax year that is great!

Once the 2025/26 tax year has started, there's no longer any significance in your "2024/25 allowance" - you simply have a new £20K allowance for 2025/26, which isn't affected by whatever is already in the ISA overnight from 5 to 6 April.

However, just to confirm, the bottom line is indeed that you can pay £4K in during 2024/25, withdraw it and then replace it again during 2025/26, without affecting your £20K 2025/26 allowance.