I usually try to put money aside into an ISA in the first part of the year and use this to save for special things like holidays and new cars. I’ve put in the full allowance now of £20,000 in the current tax year. I plan to buy a new car in the New Year and I’ll need to use about £10,000 of my ISA savings to buy it. I am hoping to have enough money to top the account back up to £20,000 by the end of the tax year in April: can I do that? I know it didn’t used to be allowed but I think it is now.
Carl Lamb of Smith & Pinching Responds
Yes, you are right: ISA rules do now allow “flexible withdrawals”, giving you the ability to take money out of your current or previous years’ ISAs and then top the same account back up to the maximum again provided you do so during the same tax year. Once the end of the tax year in which you took the withdrawal has passed, anything you put into an ISA will count towards the new year’s allowance.
It’s important to be aware, however, that not every ISA will allow you the facility to top up, so do check with your ISA provider before taking your money out. For example, if you have a fixed term ISA – ie one where you have been given a preferential rate in return for agreeing to keep your money invested for a minimum period of time – you may well have to pay a penalty for accessing the money early and there may be no facility to top the ISA up again.
If your ISA doesn’t allow flexible withdrawals, then you can transfer your money into one that does. If you’re using the current year’s ISA savings, you would need to transfer the whole year’s deposits in total into a new account – and once again there may be penalties if fixed terms are involved.
If you have your money invested in a Stocks and Shares ISA that contains cash investments within the portfolio, then only the cash element can be topped up in this way.
It’s hugely important that if you are looking to transfer money from one ISA to another that you do it using a proper ISA transfer: your new provider will arrange this. If you simply withdraw the money and then open a new ISA account, your new deposit will count towards your annual ISA allowance.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
Carl is a Director and Chartered Financial Planner at Smith & Pinching