Change to the Flexible ISA Regulation (5DDB) dated 15 July 2025

slinger2

I notice that there's been a change to the Flexible ISA Regulation (5DDB) dated 15 July 2025. See: https://www.legislation.gov.uk/uksi/2025/733/regulation/5/made

The main effect of this is to change paragraph (3). From April 2024 this said:

"(3) Any replacement subscription may be made only to the account from which the withdrawal of a cash amount it is replacing was made."

but now says:

"(3)  Any replacement of a previous years’ subscription may be made only to the account from which the withdrawal of a cash amount it is replacing was made.

(3A) Any replacement subscription that is not deemed to be a replacement of a previous years’ subscription is to be treated as a subscription to an account as specified in regulation 4ZA (subscriptions to an account other than a junior ISA account).”

Paragraph (1) defines what a "replacement subscription” is:

"(1) −The terms and conditions of an account ... (“flexible account”) may provide for an account investor to be able to replace (in whole or part) a cash amount withdrawn by the account investor in any year by a replacement subscription of a cash amount ... (“replacement subscription”) made in that year."

This is all very difficult to understand. However it looks like a return to something like the pre-April 2024 situation where you can withdraw the current year's subscription from a “flexible account” and replace that cash into any ISA. Or am I completely misunderstanding this?

There is an Explanatory Note here: https://www.legislation.gov.uk/uksi/2025/733/note/made but that doesn't help me understand what's going on here.

Albermarle

Relevant new thread ?
Flexible ISA Replacement Rules Confusion — MoneySavingExpert Forum

Kim_13

If that is the intent, then surely all they needed to do was to change the wording so that a replacement subscription could be made into any ISA. Any ISA with the same manager would even be an improvement, making life easier for those switching products for a better rate. E.g. With Skipton, you can ditch one account for another in two minutes, but if you’re forced to keep the same account number because of the Flexible ISA rules, you have to secure message them with your request and wait. 

This update appears to me to change nothing, unless 3A adds clarity for some.

slinger2

Being able to replace this year's subscriptions into another iSA is clearly a change. Previous year's money needs to be replaced into the same ISA.

Its true that some providers offer a "portfolio" system whereby you can switch easily between their iSAs, but this ability to move this year's money to a new provider is something new. 

Kim_13

Ah, I missed the addition of previous years’.

Wondering if this may create a headache where an ISA contains both current and prior year - are you deemed to have taken out all current year subscriptions first and thus can do whatever you like when replacing that amount? People would obviously prefer the flexibility rather than it all being deemed prior year on the basis that current year contained insufficient funds. 

slinger2

There are rules:

When you withdraw you are taking out this year's money first. If that's all taken out you'll be withdrawing old money 

In reverse when you replace it. It replaces old money if any of that was withdrawn. After that's all replaced you'll be replacing this year's money. 

surreysaver

So it basically means you can move current year money around willy-nilly, as long as withdrawn subscriptions are taken out of a flexible ISA, and you haven't got more than £20k in current year subscriptions in ISAs at any one time?

masonic

slinger2 said:

I notice that there's been a change to the Flexible ISA Regulation (5DDB) dated 15 July 2025. See: https://www.legislation.gov.uk/uksi/2025/733/regulation/5/made

The main effect of this is to change paragraph (3). From April 2024 this said:

"(3) Any replacement subscription may be made only to the account from which the withdrawal of a cash amount it is replacing was made."

but now says:

"(3)  Any replacement of a previous years’ subscription may be made only to the account from which the withdrawal of a cash amount it is replacing was made.

(3A) Any replacement subscription that is not deemed to be a replacement of a previous years’ subscription is to be treated as a subscription to an account as specified in regulation 4ZA (subscriptions to an account other than a junior ISA account).”

Paragraph (1) defines what a "replacement subscription” is:

"(1) −The terms and conditions of an account ... (“flexible account”) may provide for an account investor to be able to replace (in whole or part) a cash amount withdrawn by the account investor in any year by a replacement subscription of a cash amount ... (“replacement subscription”) made in that year."

This is all very difficult to understand. However it looks like a return to something like the pre-April 2024 situation where you can withdraw the current year's subscription from a “flexible account” and replace that cash into any ISA. Or am I completely misunderstanding this?

There is an Explanatory Note here: https://www.legislation.gov.uk/uksi/2025/733/note/made but that doesn't help me understand what's going on here.

So over consecutive changes we have returned to the original intent, but with much more confusing language (sigh).

Malchester

So does this change mean I can do an ISA transfer by taking it out of a flexible ISA and at a later date pay it into a different ISA? How will this be monitored? If I deposit £10k into an ISA how will it be proven it is from a flexible ISA?

eskbanker

Malchester said:

So does this change mean I can do an ISA transfer by taking it out of a flexible ISA and at a later date pay it into a different ISA? How will this be monitored? If I deposit £10k into an ISA how will it be proven it is from a flexible ISA?

As with any other ISA matters, the monitoring is ultimately retrospective by HMRC compliance checks after the end of the tax year, based on the annual submissions from the ISA providers.

It remains the ISA holder's responsibility not to break the rules but, as before this change too, it isn't practical for ISA providers to control that - it's obviously straightforward for any ISA provider to limit new money to £20K in any tax year but it's never been possible for any of them to track invalid aggregate subscription totals across multiple providers, for example.

Albermarle

Malchester said:

So does this change mean I can do an ISA transfer by taking it out of a flexible ISA and at a later date pay it into a different ISA? How will this be monitored? If I deposit £10k into an ISA how will it be proven it is from a flexible ISA?

The new ISA will just see that you have deposited £10K of new money ( its source is irrelevant to them) .
The new ISA will report to HMRC at some point that you have added £10K of new money in the current tax year.

The ISA you withdrew the £10K from will look how much you added in the tax year, and reduce that by £10K before reporting to HMRC.