ISA Query

Nardge

Good afternoon,

Just a quick query before I do it...

As we know, we've started the 2025_26 tax year.

I maxed out my 20K ISA allowance for the 2024_25 tax year.

Am I able to withdraw 4K for the 2024_25 tax year from a flexible Cash ISA and use it to fund my 2025_26 LISA allowance, then pay 4K back into the same above flexible Cash ISA later this year along with a further 20K? (4K from the previous 2024_25 tax year, 20K for the new 2025_26 tax year, making it 24K overall).

I think the answer is yes, though would welcome confirmation!

With Kind Regards      

eskbanker

No, you can't pay £4K into a LISA and £20K of new money into a cash ISA if the former originates from a flexible ISA withdrawal - you'd need to handle it as a transfer.

Nardge

Thank you! Good job you were here! 

So I can do as intended (move old 4K + fund a new 20K) provided the previous year's 4K is moved as an ISA Transfer rather than as a withdrawal and then redeployment. 

I find the flexible aspect of ISAs difficult to get my head around then. 

slinger2

Nardge said:

Thank you! Good job you were here! 

So I can do as intended (move old 4K + fund a new 20K) provided the previous year's 4K is moved as an ISA Transfer rather than as a withdrawal and then redeployment. 

I find the flexible aspect of ISAs difficult to get my head around then. 

A flexible ISA lets you withdraw money and replace it in the same ISA, in the same tax year that you withdrew it, without using any of your £20k allowance.

You can't use the flexible aspect to move money from one ISA to another. You have to use the "transfer" system for that.

Nardge

slinger2 said:

Nardge said:

Thank you! Good job you were here! 

So I can do as intended (move old 4K + fund a new 20K) provided the previous year's 4K is moved as an ISA Transfer rather than as a withdrawal and then redeployment. 

I find the flexible aspect of ISAs difficult to get my head around then. 

A flexible ISA lets you withdraw money and replace it in the same ISA, in the same tax year that you withdrew it, without using any of your £20k allowance.

You can't use the flexible aspect to move money from one ISA to another. You have to use the "transfer" system for that.

"You can withdraw funds from a flexible ISA and replace them within the same tax year, even if the withdrawn funds were added in a previous tax year." - Quote for Goole AI Overview

So if I withdrew and redeployed 4K (c/f isa transfer), I don't see how LISA provider +/- HMRC would know the 4K funds had come from the previous year of my Cash ISA provider rather than being fresh current tax year funds? 

Similarly, how would Cash ISA provider +/- HMRC know I'd redeployed the withdrawn 4K into the above LISA, when I went on to subsequently pay back the old previous year's 4K and funded a new current tax year's 20K?

eskbanker

Nardge said:

slinger2 said:

Nardge said:

Thank you! Good job you were here! 

So I can do as intended (move old 4K + fund a new 20K) provided the previous year's 4K is moved as an ISA Transfer rather than as a withdrawal and then redeployment. 

I find the flexible aspect of ISAs difficult to get my head around then. 

A flexible ISA lets you withdraw money and replace it in the same ISA, in the same tax year that you withdrew it, without using any of your £20k allowance.

You can't use the flexible aspect to move money from one ISA to another. You have to use the "transfer" system for that.

"You can withdraw funds from a flexible ISA and replace them within the same tax year, even if the withdrawn funds were added in a previous tax year." - Quote for Goole AI Overview

So if I withdrew and redeployed 4K (c/f isa transfer), I don't see how LISA provider +/- HMRC would know the 4K funds had come from the previous year of my Cash ISA provider rather than being fresh current tax year funds?

The sequencing is predefined:

Flexible ISA withdrawals are deemed to be:

• firstly of current year subscriptions
• secondly of previous year funds

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

Nardge said:

Similarly, how would Cash ISA provider +/- HMRC know I'd redeployed the withdrawn 4K into the above LISA, when I went on to subsequently pay back the old previous year's 4K and funded a new current tax year's 20K?

After the end of the tax year, HMRC would identify the aggregate total of £24K of deposits exceeding the limit.