The transferring Isa manager will tell the new Isa manager what subscriptions have been made in the current year upon transfer. With a flexible Isa, this will be the net subscription value – the amount paid in less the value of withdrawals from the flexible Isa. If the withdrawal was greater in value than the current year subscriptions, the total net subscription for the current year will be recorded as £0 upon transfer. Subject to any subscriptions made to other Isas in the year, the full balance of the annual subscription limit will be available with the new manager.
Any replacement subscriptions made to the new Isa in the same tax year will count towards the annual subscription limit.
Where the transfer comprises of only previous years' Isa subscriptions any withdrawals not replaced before the time of the transfer cannot be replaced with the new manager without counting towards the current year’s Isa allowance. They could however be made with the transferring Isa manager in the same tax year as the withdrawal if they keep the Isa open.
Future of Isas
Isas have become more complicated over time, particularly with the introduction of the Lifetime Isa, but despite this are still viewed by the public as relatively simple.
At present, Isa flexibility is primarily offered by cash Isa managers although there are a few stocks and shares providers who are currently offering or in the process of introducing the option.
Isa flexibility does create added complexity and reporting for the Isa managers who chose to offer it and this, coupled with a lack of investor and adviser demand, has been cited as the main reason not to offer it.
However, there are cases where flexibility could prove a valuable option and might even act as a further incentive to use cash currently languishing in bank accounts to invest in Isas.
While clients will be advised to have emergency cash funds available to avoid dipping into accounts invested for the long term, circumstances could require access to accounts at short notice and the ability to replenish the accounts further down the line could be attractive.
The pandemic and support packages available shone a light on the self-employed savings and investments gap and the need to make provision for both the long term and short-term shocks. Even in ‘normal’ times, self-employed people often face a higher risk to their cash flow than the employed, so the comfort of the ability to draw on and replace investment accounts as a buffer could incentivise further saving and investment in good times.
If Isa flexibility engages saving and investment further, then does that make a compelling case for making it a mandatory feature across the traditional Isa landscape?
