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A guide to flexible ISAs

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The flexible ISA was introduced in April 2016 as a way to give savers the opportunity to make the most of their annual ISA allowance.

Not all providers include flexibility, as the rules aren’t compulsory, but below we outline the key features and how we at Paragon support this ability within your ISA account.

What is a flexible ISA?

A flexible ISA allows you to withdraw money from your ISA account and put it back again without it affecting your annual ISA allowance, which is £20,000 for 2021/22.

For instance, if you’ve used £15,000 of your ISA allowance and withdraw £5,000, you can replace it before the tax year ends on 5 April and still pay in a further £5,000 to meet your £20,000 allowance.

Flexible ISAs are flexible automatically, there’s nothing for you to do, although we do recommend you keep track of your own annual allowance and mark your calendars for the new tax year.

Flexibility can apply to both variable and fixed rate cash ISAs. Our fixed rate, easy access and notice cash ISAs all have the flexibility feature.

Are all ISAs flexible?

No. At the opposite end of the spectrum is a standard ISA - if you decide to take funds out of your ISA and replace them, the money you put back reduces your allowance for the tax year. If you hit the limit, you won’t be able to put anything more back in.

For example, Lifetime ISAs (LISAs) aren’t flexible ISAs. So, any funds you withdraw are potentially subject to the government withdrawal charge and can’t be replaced without using your remaining LISA allowance.

Does ISA flexibility apply to withdrawals from previous years?

In short, no. However, it’s simple! Whatever you withdraw from your ISA account you can easily replace into the same account, as long as the transactions are within the same tax year. This won’t interfere or change any of the current year’s allowance.

Can I transfer my existing ISA to Paragon?

Of course, however you can’t split your current ISA allowance across multiple providers so you must transfer your current year’s ISA subscription in full. If you decide to transfer your ISA to us, your current provider will let us know how much more you can deposit within the tax year.

That being said even though you can’t spread your ISA allowance across multiple providers, here at Paragon we have an ISA wallet, more on that later!

  • Tip 1 - Double check with your provider that your ISA account is flexible before moving any funds.
  • Tip 2 - Ensure you transfer your ISA via your provider and not a withdrawal or you could lose the tax-free ISA status on the money you transfer…oops!

Can I transfer my flexible ISA to a provider that doesn’t offer ISA flexibility?

If you need to remove the ability of flexibility in your ISA account, say for more discipline, you can.

Crucially, however, you will not be able to repay any money that is withdrawn after the switch without it counting towards your ISA’s annual allowance, so think carefully and plan this well.

What if I choose to close my flexible ISA?

Say you close your flexible ISA account without replenishing the withdrawn funds in that tax year, you can re-open the account in the same year and add the withdrawn funds without it affecting your annual ISA allowance.

What’s the story on our ISA wallet?

Paragon’s ISA wallet is a great way to have multiple ISA accounts with us all in one place and your ISA wallet and flexible ISAs can work together, teamwork!

Our ISA wallet is a tax wrapper that lets you open more than one cash ISA with us, in the same tax year. Not all providers have this feature with their accounts and normally you can only open one cash ISA per tax year. With us you can spread your annual ISA allowance across our range of ISAs.

With an ISA wallet you have freedom and independent control of your annual ISA allowance. If you withdraw from your flexible ISA, our ISA wallet enables you to reinvest that money into another ISA with us.

Learn more about our ISA wallet and ISA products with our savings explained guide on flexible ISAs.

Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551