In this brief blog, we are going to discuss the question “What happens if I take money out of my ISA?”
Some ISA providers will let you put money you have taken out back into your ISA without this money counting towards your annual ISA allowance which currently stands at £20,000. These ISA accounts are known as flexible ISAs and essentially nothing happens if you take money out of your ISA. When you take money out of your ISA you will not lose any tax benefits.
Rather than moving money from your ISA you can simply submit an ISA transfer request if you want to move your ISA funds from one provider to another. This will mean that your annual ISA allowance isn’t affected.
What happens if I take money out of my ISA?
We will look at what happens when you take money out of your ISA by looking at the different types of ISA.
If you take money out of your lifetime ISA you will need to be using it to buy a house as you are a qualifying first-time buyer or be taking money out of your ISA because you are over 60 years of age. If you take money out of your lifetime ISA and you don’t meet any of these requirements then you will be charged a 25% withdrawal penalty of taking money out of your lifetime ISA. You can only withdraw money from your Lifetime ISA to use for the above purposes after 12 months of opening the lifetime ISA.
The only time this withdrawal penalty will not be charged is:
You are using it towards a first home
You are aged 60
You are terminally ill with less than 12 months to live
You are transferring to another Lifetime ISA with a different provider
If you die, your Lifetime ISA will end on the date of your death and there won’t be a withdrawal charge for withdrawing funds or assets from your account.
Help to Buy ISA
If you take money out of your Help to Buy ISA you cannot simply put it back and can only make the required maximum monthly contribution of £200.
If you take money out of your cash ISA then depending on the type of Cash ISA you may need to give notice to the ISA manager. If the cash ISA is a flexible cash ISA then you can take the money out of your ISA and put it back without it affecting your annual ISA allowance.
Example of what happens when you take money out of a flexible ISA.
Your allowance is £20,000 and you put £5,000 into an ISA during the 2019 to 2020 tax year. You then take out £2,000.
The amount you can now put in during the same tax year is:
£17,000 if your ISA is flexible (the remaining allowance of £15,000 plus the £2,000 you took out)
£15,000 if your ISA is not flexible (just the remaining allowance)
If it isn’t a flexible ISA and you take money out of your ISA then the money you can put back will count as part of your annual ISA allowance.
Stocks and shares ISA
If you take money out of your stocks and shares ISA then you will lose a proportion of returns based on the amount you took out. You will not be able to put the money back into your ISA except you still have part of your annual ISA contribution left.
Innovative ISA (peer to peer ISA)
If you take money out of your peer to peer ISA you will of course not benefit from any returns generated from the peer to peer loans you had access to.
Do you pay tax when you withdraw from an ISA?
No, you do not pay tax when you withdraw from an ISA. Withdrawing your money. You can take your money out of an Individual Savings Account ( ISA ) at any time without having to pay any tax or lose any tax benefits on your ISA. If you have a flexible ISA then you can take money out of your ISA and put it back in the same tax year without affecting your annual ISA allowance.
Can I withdraw all my money from my ISA?
Yes, you can withdraw all your money from your ISA account whenever you want without any restrictions but some ISA providers may charge you a fee, some ISA schemes may have a withdrawal penalty e.g the Lifetime ISA and some ISA providers may require notice before you withdraw money from your ISA e.g Notice ISAs. In any case, you can withdraw all your money from your ISA.
How long does it take to withdraw money from an ISA?
It can take between 48 hours and 1 week to withdraw money from an ISA. If it takes much longer than this to withdraw money from an ISA account then you could report this to the financial ombudsman.
Can you withdraw money from a fixed rate ISA?
Yes, you may be able to withdraw money from a fixed rate ISA but there may be some charges involved in doing so. For example, if your rate is fixed for one year, the charge may be the equivalent of 60 days’ interest.
How much can you take out of an ISA?
You can take out as much as you want to take out of your ISA. With flexible ISAs you can take money out of your ISA and put it back into the ISA without it reducing your current ISA allowance for the tax year.
The current ISA allowance is £20,000.
Do you lose interest if you withdraw from an ISA?
Yes, you will lose the interest being paid on the amount which you have withdrawn from your ISA. If you are concerned about this then you should only withdraw from your ISA if you are comfortable with the amount of interest you are going to lose. If you are withdrawing from a fixed rate ISA you will lose a set number of days’ interest, usually 60-120 days.
In this brief blog, we answered the question “ What happens if I take money out of my ISA? “ If you still have any questions then please let us know in the comments.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.