Understanding flexible ISAs

The government has now introduced the flexible ISA. Find out more about how this could affect you and your savings needs.

What’s a flexible ISA?

A flexible ISA allows you more flexibility with your savings (hence the name). The basic concept is that money can now be moved in and out of an ISA without counting against your tax-free allowance.  As long as any money you’ve taken out is replaced within the same tax year, your total ISA allowance for the year is unaffected. You can even use this flexibility to withdraw funds subscribed in previous tax years and replace these funds without affecting your current ISA allowance.

How will I know if my ISA is flexible?

Not all banks and building societies are required to offer flexible ISAs, so it’s important to check the terms and conditions, or speak to your ISA manager, before making any withdrawals. If your ISA is not flexible, making a withdrawal and then paying funds back into the account will be classed as a subscription and will count towards your annual allowance.

Here at the Newcastle, we’re making all of our cash ISAs flexible*, including existing accounts that we no longer offer to new customers. You’ll notice a change in your terms and conditions if you already hold an ISA with us.

*Please note that flexibility isn’t available in Junior ISAs or in Help to Buy: ISAs, therefore these accounts remain as standard ISAs.

How does a flexible ISA work?

A flexible ISA works by simply allowing you to replace any funds withdrawn from your ISA without affecting your annual ISA allowance. As a result there are now two ISA allowances:

Annual ISA allowance

This is the amount you can invest into an ISA within a tax year. Currently this amount is £20,000 for the tax year 2017/18 and this amount can change on an annual basis.

Flexible ISA allowance

This is the amount withdrawn from previous years' ISA allowances. This amount can be re-invested with the existing provider. This amount will be reset at £0 at the beginning of the new tax year.

As with all ISAs there are rules, the keys ones are:

  • Any ISA funds withdrawn must be reinvested within the same tax year (6th April - 5th April) to avoid begin classed as a new subscription.
  • Any funds reinvested will count towards the flexible ISA allowance first.

Transferring a flexible ISA

Flexible ISA transfers will work in the same way as standard ISA transfers. If you choose to transfer your current year’s ISA subscriptions to a new provider, you must choose to transfer the full amount. Previous year’s subscriptions can still be transferred in part or in full.

Your ISA provider will let your new provider know how much tax-free allowance you have remaining for the current tax year, taking into account any withdrawals you’ve made from current tax year subscriptions.

However if you wish to transfer previous year’s ISA subscriptions, your existing ISA provider will transfer the balance requested and not inform your new ISA provider of any withdrawals.

This means that if you close all your existing ISAs your flexible ISA allowance will be £0 and you will not be able to replace any withdrawals made from previous years' subscriptions.

How do you close a flexible ISA?

If you hold a flexible ISA with Newcastle Building Society and choose to close it, you will be unable to re-open it at a later date in order to replace funds for withdrawals made and not replaced while it was still open.

If you hold multiple ISA products and you choose to close one, using our CustomISA facility, you will be able to replace withdrawals made into another ISA product (subject to product terms and conditions).

Is flexibilty permitted across all ISAs?

Flexibility isn't available in Junior ISAs or in Help to Buy: ISAs, therefore these accounts remain as standard ISAs. If you withdraw funds from a Help to Buy: ISA, replacement deposits can be made into a flexible cash ISA held within your CustomISA wrapper and subject to product terms and conditions.

 

Questions?

Speak to a member of our customer service team, who will be happy to explain more about flexible ISAs or CustomISA and answer any questions you may have.

Call 0345 734 4345 (8am -6pm, Monday to Friday). Alternatively, pop into your local Newcastle Building Society branch.