Taking money from an Individual Savings Account

Are you considering creating an ISA but are unsure of some of its characteristics and rules? You are wondering if when you make a withdrawal from an ISA, is tax due? You should know that the majority of ISAs let you withdraw money at any given moment without losing your tax advantages. Nevertheless, some ISAs like the Flexible cash ISA and Lifetime ISA, have specific withdrawal requirements and fees that you should take into account. To know about others types of ISAs, such as Cash or Stock and Shares ISA, you can check out blog article. You could also be charged a fee by some businesses if you request a withdrawal, so review the terms with attention before signing.

What happens when you withdraw money from an Individual Savings Account

Whenever you withdraw some money from an Individual Savings Account, this act decreases the annual allowance. It applies for all the ISAs, but not for the flexible cash one. The annual allowance is fixed at £20.000 for the current UK tax year. When you withdraw money from almost all ISAs, a percentage of your yearly allotment is used. This indicates that anytime you take money from an ISA after reaching the maximum allowed, you will not be able to reinvest any sum in that same tax year. If it is not clear enough, we will provide an example to help you understand better how this works. Let’s say you proceed to do this operation within this tax year (2022-2023). As reported before, the total allowance is £20,000. If you put £15,000 into an ISA and then you decide to withdraw £5,000 in this same fiscal year, the maximum you can deposit afterwards is £5,000 for most of the ISAs, £10,000 in case you have a flexible cash ISA.

ISAs and money withdrawal

Individual Savings Accounts (ISAs) allow you to withdraw funds whenever you choose without forfeiting any tax advantages. Any amount, whenever you choose, may be withdrawn. Some ISA types though have their own set of rules and regulations when it comes to taking money out of them.

Flexible cash ISA

You can withdraw money from a Flexible cash ISA with no reduction of your current tax year’s cap. In the case you have such an account you would have until the rest of the fiscal year to deposit the sum back.

Fixed-rate cash ISA

Although your provider might well have specific rules on partial or normal withdrawals, as well as on premature closure, you might not be allowed to have access to your money for the length of time of a Fixed-rate cash ISA. There would probably be costs or charges involved if you opt for withdrawals from this type of ISA within the designated time frame.

Help to buy ISA

Have you opened a Help to Buy ISA in order to save up and be able to purchase your first home? Subsequently, if you decide to withdraw money for a reason other than buying your first property, you will forfeit the associated tax benefits. Before the Help to Buy ISA closes, any funds relinquished are not qualified for the government incentive.

Lifetime ISA

Do you own a Lifetime ISA? In this case, you are only permitted to withdraw funds from it in three specific situations, which are: when you have less than a year to live due to a terminal illness, when you wish to purchase your first home, and when you are 60 years old or more. You can also take a sum for other reasons, but in this situation the UK government is going to impose a 25% tax on the amount you withdraw from a Lifetime ISA.