My mother has an Isa with Nationwide but she hasn’t added or withdrawn any
money during this tax year.
Last week, she opened another cash Isa with the Post Office and deposited money into it. I am worried that this breaks the Isa rules.
Now we are both very confused and are not sure which Isa she is allowed to deposit or withdraw funds from.
Isa rules are not the most straightforward, and it can be tricky to know if you’ve broken them or not.
From what you have said, it would appear your mother has acted correctly.
Every tax year, you are allowed to subscribe to one cash Isa, although it can be a different Isa provider each year.
The word ‘subscribe’ is important because if you deposit as little as £0.01p, you cannot place any funds with another cash Isa provider in that tax year, unless you transfer that year’s subscription in full.
With regard to withdrawing funds, new flexibility rules are being introduced with effect from 6 April 2016.
At the moment, you can put up to £15,240 into a cash Isa. But once you have deposited the full amount, you cannot replace withdrawn money. By withdrawing funds, you will, in effect, lose that part of your Isa allowance.
So, if you deposit £10,000 into an Isa, you can only deposit another £5,000 until you’ve used up your allowance. If you withdraw £2,000, it makes no difference, you still only have £5,000 left of your Isa allowance for that tax year.
From the new tax year, you will be able to withdraw funds and replace them – so you’ll have the freedom to take money out and put it back (in the same tax year only) without losing any of your tax-free entitlement.
With Isas from a previous tax year, the rules remain the same and if you make any withdrawals, you cannot replace those funds – so that part of your allowance will remain lost. Any money you can put back into your Isa will count as the current tax year’s allowance.
Anna Bowes is a founder and director at Savings Champion.