Flexible ISAs guide
Comments
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I'm very surprised MSE is including this loophole on their main site. It is one that has been discussed here for a while, but not something I'd have thought they'd want to risk publicising."Another key rule is you must replace the money in the same ISA account you took it out from, with two exceptions.
If a full withdrawal results in the automatic closure of your account you can open a second cash ISA you can put money into (but you can only do this once per tax year)."
The above is on the money saving expert page on flexible isas. Does anybody know where this quote is found authoritively, e.g. HMRC, ISA guidelines.
The source is relatively easy to find with the right keywords: https://www.google.com/search?q=isa+self+transfer
First link for me is the Gov website, scroll down to 'Investor error' ISA self transfer0 -
Masonic, the links given above relate to self transfer mistakes. Rather my query is about opening a new flexible cash isa in the same year that I have already opened a cash isa (non flexible) in the circumstance where my existing flexible cash is closed automatically by a full ISA transfer mistake by the acquiring bank when only a partial transfer was requested in the ISA Transfer Form. It appears to me that the quotation in my original post above from the moneysavingsexpert page allows me in this circumstance of automatic closure to open and contribute or transfer to a new flexible ISA even though I have already opened and paid into a cash isa in the same current year. Some banks say yes, others say no cannot do this. The HMRC Helpline could not help with my query as the 0800 phoneline only deals with tax issues, not queries about ISA rules laid out by HMRC.0
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The text you quoted from MSE relates to the self-transfer loophole, not ISA flexibility. There is theoretically no limit to the number of times you can flexibly withdraw subscriptions from the current tax year in full and then replace them in a different ISA. The flexible withdrawal of current year subscriptions in full is equivalent to you having opened a current year ISA but never having funded it.Masonic, the links given above relate to self transfer mistakes. Rather my query is about opening a new flexible cash isa in the same year that I have already opened a cash isa (non flexible) in the circumstance where my existing flexible cash is closed automatically by a full ISA transfer mistake by the acquiring bank when only a partial transfer was requested in the ISA Transfer Form. It appears to me that the quotation in my original post above from the moneysavingsexpert page allows me in this circumstance of automatic closure to open and contribute or transfer to a new flexible ISA even though I have already opened and paid into a cash isa in the same current year. Some banks say yes, others say no cannot do this. The HMRC Helpline could not help with my query as the 0800 phoneline only deals with tax issues, not queries about ISA rules laid out by HMRC.
In circumstances where the error was made by one of the ISA managers during the transfer of the ISA, such that the ISA transfer could not be completed as requested, the sending ISA manager must reinstate the original ISA regardless of which ISA manager was at fault. You should pursue a formal complaint against the sending ISA manager in this regard.
You are not at liberty to open a new ISA of the same type elsewhere in the same tax year you subscribed to that original ISA, save for the self-transfer provisions mentioned in the link above
OR the sending ISA manager has recorded that you have made a flexible withdrawal of your current year subscriptions in full AND the receiving ISA manager has treated the transfer as never having been received (in which case, if the original ISA contained money from previous tax years that portion of your allowance would be lost because flexibly withdrawn subscriptions from previous years cannot be replaced in a different ISA account).0 -
"Another key rule is you must replace the money in the same ISA account you took it out from, with two exceptions.
If a full withdrawal results in the automatic closure of your account you can open a second cash ISA you can put money into (but you can only do this once per tax year)."
The above is on the money saving expert page on flexible isas. Does anybody know where this quote is found authoritively, e.g. HMRC, ISA guidelines.
The guidance you found from Masonic's first suggestion is what the MSE notes are getting at.The ceding bank had not heard of the above header rule in quotes and I cannot find an HMRC reference to it. Anyone help?
If you make a full withdrawal from a cash ISA such that the cash ISA closes (or at least, doesn't contain any current year subscriptions), you would be able to get away with opening another cash ISA in the same tax year and putting your full current year cash ISA subscription into that new ISA. Effectively, rather than declaring the second ISA void, HMRC will let you get away with it as a 'self-transfer'. Which you can only do once per tax year.
This 'valid self-transfer' concept is not specific to flexible ISAs and has existed since before flexible ISAs. Basically it's HMRC acknowledging that investors sometimes make mistakes through not knowing the rules - so rather than coming back at the end of the year when they get the ISA reports and declaring the new ISA invalid due to too much aggregate cash ISA subscription in the tax year, they can instead allow the new cash ISA subscription to stand, as long as the old ISA was closed prior to the new cash ISA subscription being made.
So, on an MSE page which is about ISA flexibility and how / why moneysavingexperts might optimise their returns by moving between products during the year, MSE decided to mention that although flexible withdrawals must go back into the account from which they came, you can effectively self-transfer from product A to product B ; meaning that if you withdrew money from A causing it to close, you can still "open a second cash ISA you can put money into", as long as it was your first time doing it within a tax year.
But this is not a special rule for flexible ISAs. It is just the HMRC 'investor breaking the aggregate contribution limit due to self-transfer can be valid and may not need to be be repaired, as long as it meets certain conditions' rule, shown as part of the guidance at https://www.gov.uk/guidance/close-void-or-repair-an-isa-if-youre-an-isa-manager
You can't open a new flexible cash ISA other than by subscribing to it or transferring to it; and you can't subscribe to it if you already have current year money in your 'cash isa (non flexible)'. So you would have to open it by way of transfer of existing ISAs.Masonic, the links given above relate to self transfer mistakes. Rather my query is about opening a new flexible cash isa in the same year that I have already opened a cash isa (non flexible) in the circumstance...
You identified the problem as being with the new bank for not carrying out your instructions given on your form to only do a partial transfer and leave the original ISA open. Instead it sounds like they provided an instruction to your old bank to do a full transfer and close the account. So no harm in complaining to them seeking a remedy or compensation for the inconvenience thwarting your plans. Do not include MSE editorial in the complaint. Just tell them that they did something which was not authorised by you and it has caused you a problem....in the circumstance where my existing flexible cash is closed automatically by a full ISA transfer mistake by the acquiring bank when only a partial transfer was requested in the ISA Transfer Form
As Masonic said, if the transfer goes wrong (partial transfer became a full transfer), the complaint for not carrying it out correctly is probably with the sending bank because they should only act on proper instructions made by you as their client and submitted to them through the receiving bank. So, give them a formal complaint too!
If the 'Some banks say yes,' were really true, your obvious solution is to go to one of those banks and do it.It appears to me that the quotation in my original post above from the moneysavingsexpert page allows me in this circumstance of automatic closure to open and contribute or transfer to a new flexible ISA even though I have already opened and paid into a cash isa in the same current year. Some banks say yes, others say no cannot do this.
However, if you have in the meantime withdrawn the previous year contributions from your non-flexible ISA, you are a bit stuffed. Getting a new flexible ISA is not going to help you put any previous year contributions (which you withdrew from a non-flexible ISA) back into an ISA wrapper. The new flexible ISA provider would not have any records that those previous year monies had ever been in an ISA.
If you haven't withdrawn the previous year contributions and they are all still sitting in the ISA that you moved them into temporarily for a better rate, pending any decisions on which non-ISA account could be a good temporary home for them... then I don't see there is much of a problem. Find a new flexible ISA you like, and transfer the contents of this ISA, to that new flexible ISA. Even if you have a separate cash ISA with current year contributions in it, that won't prevent you transferring your old previous year contributions into a new flexible ISA arrangement. You just need to identify a flexible ISA which accepts transfers of previous-year money.0 -
Just be sure to withdraw the money from the Flexible ISA first (creating a flexible allowance). Then you can open/subscribe to an IFISA up to the same value.
Am I right in thinking that only the source ISA must be flexible to do this? That is certainly my reading of the regulations (which refer to the target account as "any account of the account investor"), but pages I have found on both MSE and RateSetter on this topic are at least ambiguous or appear to suggest the target ISA must be flexible too.0 -
Current year funds that are flexibly withdrawn can be replaced in any valid ISA whether flexible or not. When you flexibly withdraw current year funds from a flexible ISA it is as if they were never subscribed.kennethmac2000 wrote: »Am I right in thinking that only the source ISA must be flexible to do this? That is certainly my reading of the regulations (which refer to the target account as "any account of the account investor"), but pages I have found on both MSE and RateSetter on this topic are at least ambiguous or appear to suggest the target ISA must be flexible too.0 -
Current year funds that are flexibly withdrawn can be replaced in any valid ISA whether flexible or not. When you flexibly withdraw current year funds from a flexible ISA it is as if they were never subscribed.
Such funds can only be replaced in an ISA of a different type, right? If you've made subscriptions to a flexible ISA this year, you've 'tagged' that ISA as subscribed, even if the net subscriptions are now £0:
https://www.bba.org.uk/wp-content/uploads/2016/02/Flexible-ISAs.pdf0 -
Replacement subscriptions can be made to any valid ISA, this can include an ISA of the same type in the following circumstances:kennethmac2000 wrote: »Such funds can only be replaced in an ISA of a different type, right? If you've made subscriptions to a flexible ISA this year, you've 'tagged' that ISA as subscribed, even if the net subscriptions are now £0:
https://www.bba.org.uk/wp-content/uploads/2016/02/Flexible-ISAs.pdf
- it is the same ISA from which flexible withdrawals have been made (including where you have transferred the ISA to a different account or provider)
- you have withdrawn all of the current year subscriptions from a cash ISA (whether the ISA is flexible or not) and then opened a second cash ISA and made subscriptions to it - can be done once per tax year (ISA self transfer loophole)
On the point of an ISA being 'tagged' as subscribed, the electronic annual returns made to HMRC do not appear to contain this information, so it is unlikely to be picked up on. However, it would be risky to self-transfer between non-cash ISAs of the same type or between cash ISAs more than once per tax year.0 -
Yeah, I was referring strictly to what the ISA Regulations permit, rather than what is possible due to the way the ISA rules have been technically implemented.
I think going by the letter of the law, withdrawals made from a flexible cash ISA can only be put back in that cash ISA, not another cash ISA of your choice, while they can be put in, eg, a stocks & shares ISA of your choice. By the letter of the law.0 -
I'm not going to delve into the primary legistlation to see what it says, but HMRC rules do provide for cash ISA self transfer:kennethmac2000 wrote: »I think going by the letter of the law, withdrawals made from a flexible cash ISA can only be put back in that cash ISA, not another cash ISA of your choice, while they can be put in, eg, a stocks & shares ISA of your choice. By the letter of the law.
https://www.gov.uk/guidance/close-void-or-repair-an-isa-if-youre-an-isa-manager#repair-void
"ISA investors must transfer their ISAs through the you (sic). Investors cannot transfer an ISA by closing it and opening a new ISA with the new ISA manager (commonly known as ‘self-transfer’), even if the investor is moving from one ISA product to another with the same manager.
Self-transfer is not available for Lifetime ISAs.
However, where:
- the investor subscribes to 2 cash ISAs, in the same tax year
subscriptions to the first ISA subscribed to were valid
- all of the current year subscriptions to the first ISA subscribed to were withdrawn (whether or not that ISA was closed) before subscriptions to the second ISA were made
The subscriptions to the second ISA may be valid, subject to the guidance below.
The first cash ISA to be self-transferred in a tax year is valid, and does not need to be repaired.
The second (and any subsequent) self-transferred cash ISA is not valid and is not eligible for repair.
The first cash ISA may be closed and all the funds held in the ISA withdrawn (including any subscriptions for earlier years) or the first cash ISA may remain open and after the self-transfer will hold only subscriptions which were made in previous years. If the ISA remains open, no further subscriptions can be made to it in the tax year of the self-transfer."0
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