Fixed rate ISA tax implications on maturity

OriginalFraz1

Hi, I would like to open a cash ISA to use my £20,000 allowance and, given the speculation that interest rates are likely to be cut, it seems sensible to opt for a fixed rate account. However, I'm mindful that there is also speculation the ISA allowance may be reduced significantly by the Chancellor at some stage. I would like to ask whether any funds held in a fixed rate ISA are likely to be vulnerable to an allowance reduction on maturity i.e. if funds are placed into a 1 year fixed rate ISA and the Chancellor announces an allowance  reduction in the meantime, does that mean on maturity it may not be possible to reinvest the full £20,000 into another ISA product? Popular opinion suggests that money already held in an ISA is likely to be safe from any allowance reduction, but could a fixed rate ISA present an opportunity for a reduction to be applied at the point of reinvestment? I appreciate that talk of an allowance reduction is only speculation, but it has made me reconsider whether a fixed rate cash ISA is the best option compared to an easy access cash ISA where the funds remain in the ISA wrapper until such time they are withdrawn. 

slinger2

Seems highly unlikely to me. What happens at the maturity of a fixed-rate product is often little different to the "transfer" of an ISA. Really would be a massive change if they restricted transfers.

Current speculation is mainly focused on a reduction of the annual allowance for Cash ISAs, which wouldn't affect maturing ISAs in any way.

Hattie627

It would be very unfair to "de-ISA" cash in a fixed term cash ISA at the maturity date, while allowing money in an open-ended easy access cash ISA account to continue on its merry ISA way indefinitely (until withdrawn by the account holder).

There seems to be a general acceptance that the change (if it happens) won't be retrospective and that money already in a cash ISA account will be allowed to remain as tax-free money, the change only affecting the amount of "new" cash which you can put into to an ISA in future tax years. 

wmb194

OriginalFraz1 said:

Hi, I would like to open a cash ISA to use my £20,000 allowance and, given the speculation that interest rates are likely to be cut, it seems sensible to opt for a fixed rate account. 

However, I'm mindful that there is also speculation the ISA allowance may be reduced significantly by the Chancellor at some stage. I would like to ask whether any funds held in a fixed rate ISA are likely to be vulnerable to an allowance reduction on maturity i.e. if funds are placed into a 1 year fixed rate ISA and the Chancellor announces an allowance  reduction in the meantime, does that mean on maturity it may not be possible to reinvest the full £20,000 into another ISA product?

 Popular opinion suggests that money already held in an ISA is likely to be safe from any allowance reduction, but could a fixed rate ISA present an opportunity for a reduction to be applied at the point of reinvestment?

I appreciate that talk of an allowance reduction is only speculation, but it has made me reconsider whether a fixed rate cash ISA is the best option compared to an easy access cash ISA where the funds remain in the ISA wrapper until such time they are withdrawn. 

The only talk is of restricting the annual allowance for new cash Isa deposits to £4k, nothing about existing balances not being allowed to be kept or transferred to other Isas. Don’t worry about it.

VNX

If there are changes coming nothing will be backdated it will all be from X date in the future

not only in terms of fairness but administratively it would be a nightmare to backdate any changes 

OriginalFraz1

Thanks for your thoughts everyone. Much appreciated.