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flexible cash ISA: does withdrawn money count towards allowance?
Hi, I have a flexible cash ISA into which I have deposited 6000£ this tax year, and subsequently withdrawn £2000. If I wish to put this £2000 into a different cash ISA owned by a different provider (because the interest rate is better), does it count twice towards my allowance? In other words, have I used up £6000 or £8000 in total of my allowance after re-investing?
Comments
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For money deposited during the current tax year, you are now treated as having used £4k of your £20k allowance (£6k minus £2k of current year flexible withdrawals). Whichever ISA you pay the £2k into before the end of the tax year you'll be treated as having used £6k in total.
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So why aren't people being advised to simply withdraw current year's subscriptions if they want to to pay into a different provider's ISA instead this tax year? It would avoid the risk of several days when neither provider is paying interest, which can happen with transfers.
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Perhaps because if you had put full £20k into flexible ISA and it had built up interest, if you withdrew the lot, you'd only be able to put £20K into another ISA. I recently transferred a flexible ISA from Monument to Vida for exactly that reason. For smaller sums, it would be okay to withdraw and put into another ISA, so long as you stay within the £20K year limit. That's my understanding of how it works anyway.
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It's entirely possible to do so if someone has a flexible ISA AND only current year contributions in that ISA. Obviously once you start getting interest paid in that ISA, that no longer works if you want interest to continue to compound within ISA umbrella. Similarly, once you have multiple year's contributions this also no longer works (can only return past year's contributions to the same ISA provider).
It's not given as standard advice as there are situations where it won't work and it relies on enough ISA understanding to not get it wrong. Whereas an ISA transfer, though potentially tedious, is never the wrong things to do. And actually I have recently had transfers that have been really quick.
#24 Save 12k in 20264 -
Good advice here but in your case it doesn't really matter of it's £6k or £8k as you will be well under your £20k allowance anyway, and the current year closes in a few days so you'll have a new £20k for 2026/27
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Yes, indeed, both outcomes are well under the £20k limit for this year. Thanks for your responses. This was an "in principle" question, in actual fact, I would be falling foul of the £20k limit, if the answer was that it would count twice.
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I clearly said simply withdraw current year's subscriptions.
Obviously if you wanted more than those going into the new ISA then you'd get a transfer initiated after you had achieved the same-day funding.
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Point taken on current year's subscription.
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I would guess that at least 90% of flexible ISA customers, are not even aware of what flexible means in this context. Then even less will understand the recent changes which allow you to deposit withdrawn current year money into a different ISA.
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It was historically the case that you could deposit recently withdrawn current year money into a different ISA. This was restricted for a brief period and then reversed. Not that I'd expect most people to be aware of such details however long they've been in place.
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