What is a Flexible ISA? Our Guide

Individual Savings Accounts are big business. Many individuals choose various types of ISAs to invest post-tax money in a tax-efficient manner.

One type is flexible ISAs. Flexible ISAs aren’t something new but lately the term has been updated and taken on a whole new meaning. To address the confusion and make things clearer, here is the Willis Owen guide to the Flexible ISA.

Flexible ISAsare Not New but they have Changed

If you’ve previously heard the term “flexible ISA” a few years ago, it’s true that they existed back then too. However, they were quite different.

There are Cash ISAs and Stocks and Shares ISAs. The former is for people who wish to store money and receive interest without the tax deduction. The latter is traditionally for people to invest primarily in funds or company shares.

The flexible aspect came in when investors were finally allowed to move money out of a Cash ISA and into a Stocks and Shares ISA. The idea was to allow them to be more ambitious in their investing goals.

The Current Flexible ISA

Now flexible ISAs are quite different. They originated in 2016, but not all ISA providers offer them.

The Flexible ISA enjoys the £20,000 annual limit on new contributions, but there’s greater flexibility as to how that works now.

For instance, you can invest £10,000, decide to withdraw £8,000 of it later in the same tax year, and leave a £2,000 balance. Then, as long as it’s still in the same tax year, adding £18,000 more tops up the balance to £20,000 worth of contributions.

In the above example, £28,000 of new contributions were made (£10,000+£18,000) but £8,000 was also withdrawn, leaving the £20,000 net total contribution. It’s worth noting that shares must first be sold to raise available cash, which can then be withdrawn. Shares cannot be withdrawn directly.

Willis Owen has published useful information on flexible ISA providers, so people can better understand the ins and outs of this new flexibility.

Is a Self Select ISA the Same Thing as a Flexible ISA?

Self Select ISAs are designed to provide a greater range of options to invest in shares or funds. They’re better for people who are keen to do stock picking and rely less on investment managers to manage their investment capital.

It is up to the Self Select ISA providers whether they choose to offer any ISA as a Flexible ISA or not. Investors must confirm it either way before opening an account.

Choosing a Flexible ISA Provider

There are now plenty of flexible ISA providers.

While what they offer is fundamentally similar, they can have different fees. Also, some websites and dashboards are easy to use whereas others are confusing. Help pages and other useful information lead investors to seek the more user-friendly stocks and shares ISA providers.

So, it pays to think beyond investment costs alone and look at other aspects because you’ll be working with them to grow your nest egg for many years, possibly even decades, to come.

Modern flexible ISAs are a good thing, providing investors with greater options, and should be sought out over lesser alternatives.

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