ISAs became flexible in April 2016. This was a big announcement in the 2015 Budget and was set to revolutionise the savings and investment industries. But we’re now in August and a surprising number of ISA providers still don’t offer any flexibility.
What is a flexible ISA?
If an ISA is flexible you can withdraw from your ISA and still be able to use that portion of your ISA allowance in that tax year.
Previously if you had used your full £20,000 ISA allowance but suddenly needed £2,000 for house repairs you would sacrifice £2,000 of your ISA allowance. Even if you could put that £2,000 back in a few months later, you wouldn’t be able to.
With the flexible ISA you would be able to put that £2,000 back into your ISA when you can afford to and still enjoy tax-free returns.
Does the flexible ISA add any value?
According to HMRC data the flexible ISA could be worth an extra £3 billion to UK savers over the next five years. Flexibility often has the opposite impact that many would expect, if we believe that we can access our money without damaging our tax savings we are more likely to use it in the first place. ISA flexibility is a fantastic way to help close the savings gap which is precisely why the Government introduced it.
Not all ISA providers offer flexibility
Whilst the Government has introduced the flexible ISA, it is up to the provider whether or not they make this possible. Consumer group, Which? recently criticised ISA providers for refusing to offer this flexibility.
A common misconception is that the flexible ISA only applies to cash ISAs, but since you need to sell your assets in order to withdraw from your stocks and shares ISA these can also be flexible. A huge proportion of stocks and shares ISA providers don’t offer this. This is unfair as individuals shouldn’t be penalised for taking their money out when they need to.
Moneyfarm offers flexible ISAs
We introduced our flexible ISAs earlier this year. Many of our investors see their ISA as a way to grow their money over the next few years so haven’t actually withdrawn from their ISAs, but we felt it was important to go through the process to be able to offer this. Customers should never be charged or penalised for accessing their money in our view.