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Flexible ISA

05 July 2016

In 2015 the government announced changes to the ISA regulations allowing the creation of a 'flexible ISA'. From 6th April 2016 all Zurich ISAs on the Zurich Intermediary Platform became flexible ISAs. Your clients can deposit up to the £15,240 ISA limit, as well as replace any withdrawals taken from the ISA in the tax year.

Flexible ISA

What does this mean for your clients?

Zurich's flexible ISA will allow your clients to replace withdrawals taken out of their ISA, without the replacement contributions counting towards their ISA subscription; giving them peace of mind that they can manage their money in a way that suits them. In addition, adviser remuneration which is treated as a client withdrawal can be replaced in their Zurich ISA to maximise their benefit from the tax shelter. See example 1 below:

Example 1

(To simplify the example we have assumed no growth takes place)

6 APR 2016 Value = £0
7 APR 2016
£15,240 contribution
Value = £15,240
Net ISA subscription = £15,240
ISA subscription available = £0
Date of First Subscription: 7th April 2016
20 NOV 2016 £500 adviser charge
Value = £14,740
Net ISA subscription = £14,740
ISA subscription available = £500
12 DEC 2016 £1000 withdrawal
Value = £13,740
Net ISA subscription = £13,740
ISA subscription available = £1,500
10 JAN 2017 £1500 contribution
Value = £15,240
Net ISA subscription = £15,240
ISA subscription available = £0

What do I need to be aware of?

Withdrawals must be repaid in the tax year during which they are withdrawn. The ISA subscription available' is not carried over to the next tax year, so a withdrawal towards the end of the tax year may be best deferred, where possible, until after 6th April, giving the customer 12 months in which to repay any withdrawals. See example 2.

If your client holds previous and current tax years ISAs, withdrawals will be first deducted from their current year subscriptions and then from previous years subscriptions. When a client replaces the withdrawals, the contributions will be deemed to first replace previous years subscriptions withdrawn in the current tax year and then current years subscriptions. Only after both previous and current years' subscriptions have been fully replaced will contributions start to count towards the ISA allowance for the current year.

If a client withdraws previous tax year’s money from an ISA and then subsequently transfers their ISA to a new manager, they cannot replace the withdrawals with the new ISA manager, as the minimum net subscription that can be transferred between ISA managers is zero. If a client wants to withdraw from their ISA at the same time as transferring to another ISA manager, it is worth considering completing the transfer before the withdrawal takes place. In addition when transferring a current year ISA the net subscriptions could be zero, if the current year subscriptions have been withdrawn. See Example 3 below.

If a client takes a withdrawal from a previous tax year ISA and they repay the money into the same ISA, they will not start using their current tax year ISA subscription until all their withdrawal has been repaid. This means that clients could open an ISA with another ISA manager for their current year subscriptions, whilst at the same time they are repaying the amount they have withdrawn from their previous years' subscription.

Example 2

(To simplify the example we have assumed no growth takes place)

5 APR 2016 Value = £15,000
6 APR 2016
£5,000 withdrawal
Value = £10,000
Net ISA subscription = - £5,000
ISA subscription available = £20,240
5 DEC 2016 £5,000 contribution
Value = £15,000
Net ISA subscription = £0
ISA subscription available = £15,240
10 JAN 2017 £15,240 contribution
Value = £30,240
Net ISA subscription = £15,240
ISA subscription available = £0
Date of First Subscription: 10th January 2017

Example 3

(To simplify the example we have assumed no growth takes place)

5 APR 2016 Value = £15,000
6 APR 2016
£5,000 contribution
Value = £20,000
Net ISA subscription = £5,000
ISA subscription available = £10,240
Date of First Subscription: 6th April 2016
5 DEC 2016 £12,000 withdrawal
Value = £8,000
Net ISA subscription = - £7,000
ISA subscription available = £22,240
Note: If the ISA is transferred to a new ISA Manager at this point the net subscriptions for the current year would be reported to the new ISA manager as zero and the date of the first subscription for the current year would be 6th April 2016.
10 JAN 2017 £15,000 contribution
Value = £23,000
Net ISA subscription = - £8000
ISA subscription available = £7,240

For clients using the Zurich Intermediary Platform you can track their remaining allowance using the ISA allowance reporting. This report will now also track net subscriptions.

Whether your client wants to maximise their ISA subscription or manage their finances as flexibly as possible, the Zurich Intermediary Platform will support you. Call your Business Account Manager today on 0500 546 546.