Flexible ISA Replacement Rules Confusion

surreysaver

slinger2 said:

surreysaver said:

Albermarle said:

surreysaver said:

So, any interest earned in a flexible ISA, if withdrawn, has to be returned to the original ISA? 
I love how they change the rules part way through the tax year. Last year they changed them at the beginning, but didn't actually tell anyone until part way through the year!

I do not think so.
If the total amount withdrawn, including interest, is less than £20k, then you could just take it all out and put all of it in another isa
If it was £20k + interest, you could leave the interest behind ( if the isa provider allowed part transfers) or withdraw it all and just keep the interest and put £20k in a new isa.
I think that is right…

But if an ISA isn't allowed to go minus contributions, and I took out subscriptions plus interest, then my year's contribution would then appear to be more if I were to put those contributions plus interest back into the same ISA?

I'm finding this issue a bit confusing.

The regulation does say that the "current year’s subscription” includes "the qualifying investments and other proceeds (including income) representing the subscriptions in sub-paragraphs (a) and (b) of this definition;" ((a) and (b) being the current year's money you've subscribed or transferred in). So, on that basis, you'd think that the "current year’s subscription” would include interest on this year's money (for a Cash ISA).

However the new regulation is quite clear: "No withdrawal under paragraph (1) may reduce the current year’s subscription amount to less than nil." So, suppose you've got an ISA with only this year's money (£20k say) in it, plus £1k interest from that. If you withdrew all £21k your allowance used would drop to zero, and I'm assuming they'd only let you pay £20k back in.

The situation would be different if the ISA contained old money. The £21k might then be treated as £20k of new money and £1k of old money, I suppose, and all of it could be "replaced" back into the same ISA.

This may be why there are reports in other threads on here where organisations have counted interest this year as last year's money, which effectively works around this rule, and allows you to replace what you've put in without actually putting in more than your £20k allowance.
Unless there's going to be another change in the ISA regulations when HMRC realise this issue

masonic

surreysaver said:

slinger2 said:

surreysaver said:

Albermarle said:

surreysaver said:

So, any interest earned in a flexible ISA, if withdrawn, has to be returned to the original ISA? 
I love how they change the rules part way through the tax year. Last year they changed them at the beginning, but didn't actually tell anyone until part way through the year!

I do not think so.
If the total amount withdrawn, including interest, is less than £20k, then you could just take it all out and put all of it in another isa
If it was £20k + interest, you could leave the interest behind ( if the isa provider allowed part transfers) or withdraw it all and just keep the interest and put £20k in a new isa.
I think that is right…

But if an ISA isn't allowed to go minus contributions, and I took out subscriptions plus interest, then my year's contribution would then appear to be more if I were to put those contributions plus interest back into the same ISA?

I'm finding this issue a bit confusing.

The regulation does say that the "current year’s subscription” includes "the qualifying investments and other proceeds (including income) representing the subscriptions in sub-paragraphs (a) and (b) of this definition;" ((a) and (b) being the current year's money you've subscribed or transferred in). So, on that basis, you'd think that the "current year’s subscription” would include interest on this year's money (for a Cash ISA).

However the new regulation is quite clear: "No withdrawal under paragraph (1) may reduce the current year’s subscription amount to less than nil." So, suppose you've got an ISA with only this year's money (£20k say) in it, plus £1k interest from that. If you withdrew all £21k your allowance used would drop to zero, and I'm assuming they'd only let you pay £20k back in.

The situation would be different if the ISA contained old money. The £21k might then be treated as £20k of new money and £1k of old money, I suppose, and all of it could be "replaced" back into the same ISA.

This may be why there are reports in other threads on here where organisations have counted interest this year as last year's money, which effectively works around this rule, and allows you to replace what you've put in without actually putting in more than your £20k allowance.
Unless there's going to be another change in the ISA regulations when HMRC realise this issue

I fail to see how that would work around the rule. Once you have exhausted your current year subscriptions, any interest from the current year would be treated as prior year anyway (even if the flexible ISA contained no prior year subscriptions). That surely cannot change now. It has never been possible to replace prior year subscriptions in another ISA without it affecting your current year allowance, so the workaround only benefits the provider by tying customers to making replacement subscriptions with them. Nor have providers had any discretion over the order in which to allocate flexible withdrawals to current vs prior years.

The new rule about not reducing current year subscriptions to less than zero simply makes clear that the overall £20k allowance cannot be breached elsewhere by virtue of interest being flexibly withdrawn. Possibly also a shot across the bow of providers who where lazily reporting previous year flexible withdrawals to customers by showing them a single >£20,000 allowance figure.

Sea_Shell

Can I just check something...my brain hurts

I have two "flexible" cash ISAs, with both old and current tax year money in (ETA respectively, I'll call them #1 and #2.)

This tax year, I have withdrawn £1500 of 'old' money from #1, and have deposited £6000 of 'new' money with #2

No 'new' money has been paid into #1.

I have since given notice and requested a withdrawal of £10,000 from #2.

AIUI, I can replace the £1500 back into #1, AND I can also still put the full £20,000 into ISA #1, made up of the £6000 withdrawn from #2 along with the other £4000, flexibly withdrawn, along with a further £10,000, new money from elsewhere.

So I 'could' in effect pay £21500 into ISA #1 and remain within the rules?   

Albermarle

Sea_Shell said:

Can I just check something...my brain hurts

I have two "flexible" cash ISAs, with both old and current tax year money in.

This tax year, I have withdrawn £1500 of 'old' money from #1, and have deposited £6000 of 'new' money with #2

No 'new' money has been paid into #1.

I have since given notice and requested a withdrawal of £10,000 from #2.

AIUI, I can replace the £1500 back into #1, AND I can also still put the full £20,000 into ISA #1, made up of the £6000 withdrawn from #2 along with the other £4000, flexibly withdrawn, along with a further £10,000, new money from elsewhere.

So I 'could' in effect pay £21500 into ISA #1 and remain within the rules?   

I think yes you could do that.
However if you put the £4K withdrawn from Isa 2 from previous years subscriptions back into ISA 2, you could still add £21500 into ISA 1 but using £14k new money.
So overall you would have more money protected in an ISA wrapper ( if that is what you wanted to do) 

Sea_Shell

I won't be putting any money back into ISA #2, the withdrawal will empty it.

But yes, I can see that I could, if I wanted to, as I would be replacing "old" money, into the same ISA from which it came.


Amended to read...

I have two "flexible" cash ISAs, with both old and current tax year money in (ETA respectively, I'll call them #1 and #2.)

slinger2

To take advantage of the flexibiltiy rules, old money needs to replaced into the same ISA it was withdrawn from. So the £1.5k will need to go back into #1

Seems you have put £6k of new money into #2, and are then withdrawing £10k. So this withdrawal will be the £6k of new money plus £4k of old money. Under the new rules from July, the £6k can be replaced into #1, together with your £14k of unused allowance for this year.

The £4k of old money you're withdrawing needs to go back into #2. The rule is that when replacing money it's the old money that's replaced first, so the provider of #2 will assume it's the £4k of old money.