With the new tax year has come a barrage of allowance threshold cuts, from capital gains to dividends tax, leaving many searching for ways to retain more of their wealth without having to face a huge bill. Express.co.uk spoke exclusively to experts to find out the benefits of flexible cash ISAs and flexible stocks and shares ISAs – and the rules to keep in mind.
From April 6, 2023, the dividend allowance halved from £2,000 to £1,000, while the capital gains tax (CGT) annual exemption dropped from £12,300 to £6,000. The CGT annual exemption is due to be slashed further to £3,000 from April 2024.
But switching to a flexible cash ISA at the beginning of the tax year (April 6) could help maximise the opportunity to save money in a tax-efficient account, experts have said.
Albert Soleiman, head of CMC Invest UK told Express.co.uk: “If you’re unfamiliar with flexible stocks and shares ISAs, then learning about their benefits should be among your new tax year resolutions.
“Not all providers offer flexible ISAs, so for many investors they’ve flown somewhat under the radar. That’s a great shame because their benefits are incredible.”
Describing the savings option as a “little-known feature of tax-free saving” Edmund Greaves, personal finance expert at Mouthy Money said they were only introduced by the Government in 2016.
Mr Greaves said: “A flexible ISA is really most useful if you’ve put money away for the future, but have it in mind that you might need that money in the short term and don’t want to lose your overall allowance if you plan to replace it.
“With a flexible ISA, you can withdraw much more than the annual limit and replace it without losing its tax-exempt status. There are certainly good reasons to do this, such as an emergency, or if you need cash in the short term which you expect to quickly get back in full.”
And it’s key to note, any withdrawals must be paid back into the account within the same tax year to retain the tax benefits.
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Mr Greaves explained: “For example, you’re selling your home and buying a new one and need £30,000 to pay stamp duty or other costs – which you expect to recoup from the sale of your old property. If you have funds inside a flexible ISA, you can withdraw it and then replace it in full in the same tax year, plus the annual £20,000 allowance, without losing its tax wrapper. If the ISA isn’t flexible then you’re back to square one when you withdraw it.”
Rather than counting each deposit towards a person’s £20,000 annual allowance, Mr Soleiman said a flexible ISA calculates the net balance of a person’s ISA.
He continued: “What’s more, you can withdraw previous years’ balances and deposit them back, as long as you do so within a single tax year (by April 5). That’s a big plus if you decide you need to access your savings, say for a big purchase – like a car or a deposit on a new home.”
Addressing the fear many have that the annual allowance may be “wasted” if withdrawals are made soon after committing funds to an ISA, Mr Soleiman said: “A flexible ISA solves that.
“And that’s important because when investors aren’t using ISAs they’re missing out on the tax-efficient benefits that are available to them.
“The new tax year has also come with a reduction in personal allowances for dividends and capital gains, so tax-efficient wrappers like flexible stocks and shares ISAs are more valuable than ever.”
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While a lot of high street banks are now offering flexible cash ISAs, it can be a bit more hit-and-miss for investment ISAs, according to Mr Greaves.
He said: “Some platforms do and some don’t, it really varies from provider to provider. If you think you might need it, it’s essential to check before putting your money in there.
“Some providers most likely don’t offer [flexible ISAs] because the Government doesn’t compel them, and it would mean them losing out on fees for holding your funds in the time it’s withdrawn.”
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