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ISA Flexibility: Understanding the rules

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What do gymnasts and some ISAs have in common? They’re both flexible. But whereas a triple somersault is visually stunning, it can be harder to see how ISA flexibility can leave you jumping for joy. 

ISAs are a popular way of saving money, free from income and capital gains tax. But with a range of options and benefits which often cause confusion, we’ve put together this Q&A to help you understand ‘ISA flexibility’ and how it’s used.

What is ISA flexibility?

ISA flexibility allows you to take out money from your ISA and replace it within the same tax year, without affecting your annual ISA allowance. Flexible ISAs are designed to help you make the most of your tax-free annual ISA allowance, which for 2020/21 is £20,000.

So, for example, if you’ve used £15,000 of your ISA allowance and take out £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.

Does ISA flexibility apply to withdrawals from previous years?

No, ISA flexibility only applies to the current tax year (6 April to 5 April). If you open a new ISA with your existing provider or transfer your money to a different provider, your annual allowance remains the same and ISA flexibility does not apply to withdrawals from previous years. 

Not all ISAs are flexible, so before moving your ISA money make sure you double check the terms and conditions.

Does Paragon offer ISA flexibility?

Yes, our fixed rate, easy access and notice cash ISAs are flexible ISAs and part of our ISA Wallet. 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 an ISA Wallet, and normally you can only open one cash ISA every tax year. But with us you can spread your annual ISA allowance across our range of ISAs.

Our ISA Wallet and Flexible ISAs work together to give you even more freedom with your annual ISA allowance. If you withdraw from our Flexible ISAs, our ISA Wallet allows you to reinvest that money into another ISA with us

Can I transfer my existing ISA to Paragon?

Yes, you must transfer your current years ISA subscription in full, so you can’t split your current ISA allowance across multiple providers. If you transfer your ISA to us, your current provider will tell us how much more you can deposit within the tax year.

Make sure to transfer your ISA through your provider and not a withdrawal, or you could lose the tax-free ISA statue on the funds you transfer.

Can I transfer my flexible ISA to a provider that does not offer ISA flexibility?

You can transfer your flexible ISA to a provider that does not offer flexibility but, crucially, you will not be able to repay any money that is withdrawn after the switch, without it counting towards your annual ISA allowance.

What happens if I close a flexible ISA?

If you close a flexible ISA without replacing all the funds you’ve withdrawn in that tax year, you can re-open the account in the same tax year and replace withdrawn funds without it counting towards your annual ISA allowance.

Who keeps track of my ISA allowance?

You should keep track of your own annual ISA allowance. If you are unsure, you should contact your provider.

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

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*AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded on an annual basis.

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