What are ISA replacements?
If an ISA account is Flexible, this means that any funds withdrawn from the ISA account can be replaced within the same tax year that the funds were withdrawn. The replacement of those funds is not a subscription and hence does not affect your yearly ISA allowance of £ 20,000. For example:
Investor A subscribes £ 20,000.00 on April 7th 2021, then withdraws £ 6,000.00 on May 10th 2021. The investor then make a replacement of £ 6,000.00 to his ISA account on March 18th 2022.
Do you need an ISA application form to make a replacement subscription?
The answer is no, as stated above ISA replacements are not a subscription and can be done even if the investor does not have a current valid ISA application in place, or is no longer a UK resident.
What happens if the withdrawn funds are not replaced before the end of the tax year?
In this scenario, the option to replace those funds back into the ISA will be lost. The tax year runs April 6th to April 5th of the following year. For example:
Investor B subscribes £ 20,000.00 on April 7th 2021, then withdraws £ 30,000.00 on June 15th 2021. The investor can make a replacement of £ 30,000.00 to his ISA account up to April 5th 2022. After this date, the £ 30,000.00 can no longer be replaced.
ISA Replacements and Transfers
When an ISA is transferred in full from one ISA manager to another, the ceding manager will provide a notice to the new manager of the investor’s current year subscriptions, which the new manager will reflect in their records and report to HMRC as though subscriptions were made with them.
The ceding manager will report current year subscriptions to the new manager net of withdrawals, but will not report negative subscriptions. For example:
An investor subscribes £ 15,000.00 with manager A on April 25th 2021, then withdraws £ 2,000.00 from his ISA account with manager A on May 16th 2021. On September 8th 2021 the investor transfers his ISA account to manager B in full. Manager A will report to manager B the investor’s current year subscriptions as £ 13,000.00. Leaving the investor free to free to subscribe £ 7,000.00 with manager B. In this instance the £ 2,000.00 will be treated as a subscription by manager B.
An investor subscribes £ 20,000.00 with manager A on April 20th 2021, then withdraws £ 87,000.00 from his ISA account with manager A on June 1st 2021. On January 7th 2022 the investor transfers his ISA account to manager B in full. Manager A will report to manager B the investor’s current year subscriptions as zero. Leaving the investor free to free to subscribe £ 20,000.00, before the end of the tax year. In this instance the £ 20,000.00 will be treated as a subscriptions by manager B.
In the above example, the remaining £ 67,000.00 (£ 87,000 – £ 20,000) can only be replaced with the manager who was managing the ISA account when the funds were withdrawn, i.e., manager A.
Is there a limit to how much can be replaced?
No, whatever the value of the funds withdrawn from a flexible ISA, can be replaced before the end of the tax year.
All ISA’s are not Flexible
When opening or transferring to a new cash or stocks and shares ISA, you should check if that ISA account is flexible, as ISA managers are free to choose if they wish to make their ISA’s flexible or not.