As experienced independent financial advisors at Enable in Bishop’s Stortford we have often come across the question as to whether money is tied up indefinitely in an ISA. It is a common mistake to think an ISA needs to be held for a set length of time in order to reap the tax-free benefits. What you need to be clear about are the rules of the individual product allow it (there’s loads that do), you can have full, instant access to your money without losing the tax benefits on the rest of your savings in the wrapper.
However, once the money’s withdrawn, it can’t be returned. A few examples should help clarify this:
Situation: Mr. Rich Devil invests £10,680 in a shares ISA at the beginning of the tax year.
Options: He may sell the whole investment, or part of it, at any time without losing the tax benefits, but no more may be bought inside that year’s ISA wrapper.
Situation: Ms. Irma Indecisive invests £2,000 in a cash ISA at the start of the tax year
Options: She may save a further £3,340 in the cash ISA, or £8,680 in a shares ISA (or a mix of the two) before the end of the tax year.
Situation: Irma then decides she needs to withdraw £1,000 of this cash
Options: There’s no problem withdrawing the money; for the time the £1,000 was in the ISA the interest it earned wasn’t taxed. However the fact she has withdrawn the cash doesn’t increase her allowance at all – she can still only put £3,340 more in the cash ISA, or £8,680 in the shares ISA.