Flexible ISAs explained

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 2020/21 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 here.

Do you have a flexible ISA and find the ability to replace money you’ve taken out useful? If so, we’d be interested in hearing from you. You can join the discussion on the Money section of the Community forum or leave a comment below.

Links with an * by them are affiliate links which help Rest Less stay free to use as they can result in a payment or benefit to us. You can read more on how we make money here.

Leave a Reply

Get the latest ideas, advice and inspiration​

No spam. Just useful and interesting stuff, straight to your inbox. Covering finance, learning, jobs, volunteering, lifestyle and more.

By providing us your email address you agree to receive emails and communications from us and acknowledge that your personal data will be used in accordance with our Privacy Policy and Terms and Conditions. You can unsubscribe at any time by following the link in our emails.

Join Rest Less for free

Rest Less is the UK’s fastest growing site for the over 50s, focusing on finance, learning, careers, volunteering, lifestyle and more. 

Good luck with your application

Before you go, we’d love to stay in touch to find out how you get on. Sign up to Rest Less today to get the latest volunteering, careers, learning, financial planning and lifestyle resources sent straight to your inbox.

By providing your email you agree to receive emails and communications from us and acknowledge that your personal data will be used in accordance with our Privacy Policy and Terms and Conditions. You can unsubscribe at any time through the link in our emails.

Good luck with your application

Before you go, we’d love to stay in touch to find out how you get on. Sign up to Rest Less today to get the latest jobs, learning, volunteering, financial planning and lifestyle resources sent straight to your inbox.

By providing your email you agree to receive emails and communications from us and acknowledge that your personal data will be used in accordance with our Privacy Policy and Terms and Conditions. You can unsubscribe at any time through the link in our emails.