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How does ISA flexibility work?
Changes to the rules of Individual Savings Accounts – ISAs - which took effect in April 2016, mean they’re more flexible than ever.
That said, you won’t be alone if you’re not sure exactly what that means and how it might benefit you.
But don’t worry, you soon will…
Functionality/How does it work?
The flexible ISA rules, introduced in April 2016, mean that you can withdraw money from an ISA and return it in the same tax year, without it affecting that year’s ISA allowance. So if you’ve taken money out of an ISA this tax year, you have until 5th April to put it back in – as long as your ISA is flexible.
So how does it work in practice? Let’s say you use your full ISA allowance by August, but then withdrew £5,000 for a new car or financial emergency in November. Under the old rules, you wouldn’t be able to put any more money in your ISA for the rest of that tax year as you’d be deemed to have used your full allowance.
Now, under flexible ISA rules, you can put the money back – as long as you do it in the same tax year. So in our example you would have until the 5th April the following year (ie the end of that tax year) to put that £5,000 back in to your ISA account.
What else should I know?
Not all ISA providers offer this flexibility, however, so if this is something you might do, double check it’s functionality that your provider offers.
Our ISAs at Barclays, are flexible.
In general, you can’t subscribe to more than one of the same type of ISA in a single tax year – so you wouldn’t be able to pay into two investment ISAs this year unless you have withdrawn all the money you paid in this tax year from a flexible ISA and then re-subscribed to another investment ISA. And you can only pay back in withdrawals that relate to previous years’ subscriptions to the same ISA they were taken from.
What’s also good is that flexible ISA rules cover dividend payments on investments held in ISAs - so if you’ve arranged for your dividends to be paid into your bank account, you’ll be able to pay these back into your flexible ISA if you want to, without affecting your annual allowance.
Remember to always check with your provider or independent financial adviser before removing any funds. Additionally, it’s worth bearing in mind that tax rules may change in the future, and whether particular tax rules benefit you, will depend on your individual circumstances. Also, note that investments held in an ISA can fall in value like any others and you might get back less than you invest.
How can Barclays help?
The rules aren’t compulsory and not every ISA will support them, but as a Barclays Stockbrokers customer, you’ll automatically benefit from full ISA flexibility.
To find out more about our ISAs, please visit our website.