Interaction of ISA transfers with flexible ISA rules

Lab24

I have 2 related questions about how flexible ISA rules interact with ISA transfers.

Context

I have been saving into a flexible ISA, and wish to transfer some of these funds into a higher interest, fixed-rate ISA, while still keeping the flexible ISA open for saving later in this tax year.

For the sake of argument, let’s imagine this flexible ISA contains:

• £5,000 of current year subscriptions, and
• £10,000 of previous year(s) subscriptions

I understand that:

• I can transfer some or all of previous years’ subscriptions, but
• If I wish to transfer current year subscriptions, I must transfer all of the current year’s subscriptions held in that ISA.
• If I completely empty the account, it will close.

Question 1 – paying into flexible ISA following transfer out

I might want to transfer as much money as possible to a fixed rate ISA, while still keeping the flexible ISA open. Suppose I transfer:

• the entirety of the current year subscriptions (£5,000), and
• Most of the previous year subscriptions (£9,000)

(i.e. £14,000 out of £15,000)

After transferring all of the current‑year subscriptions, can I pay in new current‑year money afterwards (up to the £20,000 annual limit across all ISAs)?

Or does transferring the full current year subscription, ‘close’ the current year part of that ISA, preventing me from adding new funds to that ISA for the rest of the tax year?

Question 2 – using flexibility either side of transfer

Alternatively, I might want to transfer only some of the current year subscriptions (not allowed).

Assuming the answer to question 1 is yes (“I can still add new money”), is the following sequence allowed as a workaround?

1. withdraw part of the current year subscriptions as cash (using the flexible ISA’s flexibility),
2. transfer the entirety of the remaining current year’s subscriptions to another ISA
3. repay some or all of the withdrawn funds (either immediately, or at a later point in the same tax year), using the flexible ISA’s flexibility?

i.e. effectively allowing you to transfer only part of the current year’s subscriptions.

Or will transferring the entirety of the current year subscription (step 2) prevent the ISA from accepting any further current‑year money, including flexible replacements in step 3?

eskbanker

If I wish to transfer current year subscriptions, I must transfer all of the current year’s subscriptions held in that ISA

This is a misunderstanding - since 2024, current year money can be split over multiple ISAs of the same type, which was a change from what was in place before, although the fact that the ISA rules allow this doesn't necessarily mean that all providers will accept such subdivision when transferring.

I think this incorrect assumption probably informs much of the rest of your post, so perhaps worth considering if your concerns are addressed by the updated information?

Lab24

https://forums.moneysavingexpert.com/discussion/comment/82047418#Comment_82047418

Thank you for getting back so quickly!

The flexible ISA provider I'm transferring from (Principality) does state in its account terms that:

"You can transfer:

- all (not part) of the money you have paid into your ISA in the current tax year; and

- all or part of the money you paid into your ISA in previous tax years."

Which I believe is quite a common restriction (despite the ability to subscribe to multiple separate cash ISAs in the same tax year)

So I'm still unclear about the rules regarding paying into a flexible ISA flowing a transfer out.

Thank you!

eskbanker

Hmm - it's certainly not unheard of for ISA providers to have failed to update their documentation after the regulations have been amended, but it's unclear to me that a ceding provider can actually refuse a legitimate transfer request from another provider.

If they're effectively seeking to impose their own unilateral conditions over and above the actual rules then it's difficult to answer questions about what they may and may not permit in your scenarios, so you may need to ask them directly.

The primary benefit of ISA flexibility is to allow withdrawn money to be replaced (in the same tax year) but it isn't clear whether you're actually seeking to do that? Is the Principality ISA particularly appealing or are there other products out there that may fit your needs with fewer restrictions?

Lab24

https://forums.moneysavingexpert.com/discussion/comment/82047443#Comment_82047443

It does seem it's a relatively common, even if unnecessary restriction (for example, the provider I'm transferring to - the Progressive Building Society - also states that they can only receive full current year transfers):

The amount in your account representing current tax year subscriptions can only be transferred in whole and not in part. Progressive doesn’t offer partial transfers of current year subscriptions, but other providers might.

I have messaged Principality (the Building Society I'm transferring from), but from past experience, banks don't always understand their own rules, hence asking here too!

I'm not intending to replace the money transferred out (this will move to a fixed-term account, so I will be unable to access it without loss of interest), but would still like to keep the flexible ISA open. I may then withdraw and repay money over the rest of this financial year, including paying in additional subscriptions towards the ISA limit.

The reason for the unusual combination of accounts is I'm keen to use only ethical accounts - either specifically ethical banks, credit unions, or building societies. These accounts are the highest interest flexible and fixed-rate ISAs I could find which meet my needs.