If you have money in a stocks and shares ISA, the rules let you take money out and replace it, without it losing its tax-free status.
This can be extremely useful if you have to dip into your ISA savings but want to replace this money without eating into your annual ISA allowance (£20,000 in the current 2023/24 tax year).
Here, we explain how flexible ISA rules work, and some of the things you need to be aware of.
What are flexible ISAs?
Let’s start with the basics of ISA rules, because they’re relevant to what makes flexible ISAs different. Under the rules, you can pay a certain amount into an ISA each tax year (a tax year runs from 6 April one year until 5 April the next).
The rules changed in 2016 to enable savers to take money out of their ISA and replace it, without this counting towards their ISA allowance. Previously, if you’d paid money into an ISA, that limited how much more you could pay into it, even if you took some money out.
The best way to describe how flexible ISAs work is to look at an example. If the old rules (non-flexible ISAs) still applied, if you paid £20,000 into your ISA and took £2,000 out, you wouldn’t be able to replace that money. That’s because you’d have paid the maximum amount into your ISA. However, under the flexible ISA rules, you’d be able to pay the £2,000 back into your ISA.
Are cash, Innovative Finance and stocks and shares ISAs all flexible?
The rules say that you can take money out of your ISA and replace it with Innovative Finance, cash and stocks and shares ISAs. However, ISA providers don’t have to offer this flexibility – so you may be with an ISA provider that doesn’t let you take money out and replace it.
If you’re considering taking money out of an ISA which you’d like to replace, you should therefore check with your provider first. For example, if you have a fixed rate cash ISA, you may have to wait until the fixed term finishes before you can take any money out, or you could have to pay an interest penalty for early withdrawal.
If you’re still deciding whether to save or invest in an ISA, you may want to enlist the help of a professional financial adviser who can recommend which ones are right for you based on your investment timeframe and your approach to risk. You can find a local financial advisor on VouchedFor or Unbiased, or for more information, read our guide on How to find the right financial advisor for you.
You can also learn more about investing in our article Investing – the basics. Find out more about how ISAs work in our article Everything you need to know about ISAs.
If you’re looking to invest in an ISA, fund platforms such as Fidelity, Hargreaves Lansdown and AJ Bell can help narrow down your choices with recommended fund lists, which might highlight 50 funds out of the 3,000 plus available to UK savers. They also offer ready-made funds for a range of different risk profiles if you don’t want to pick investments yourself. Bear in mind that there are charges associated with stocks and shares ISAs and you’ll pay a fee to the platform as well as for the funds held.