On 6 April 2016, the Government introduced Flexible ISAs and tax-free Personal Savings Allowance (PSA) on the interest you earn on your savings and interest paying bank accounts. Both were designed to help savers make more of their hard-earned money.

Flexible ISAs

Flexible ISAs allow you to manage your tax-free savings with more freedom.

  • You can save up to your usual £20,000 ISA allowance for this tax year.
  • All Flexible ISAs allow you to withdraw money from your ISA and replace withdrawn funds within the same tax year without affecting your current year ISA limit of £20,000.

Find out more 

Personal Savings Allowance

The Personal Savings Allowance is good news for savers, as the majority of people won't need to pay any tax on the interest they earn.

  • Basic rate tax payers can earn up to £1,000 interest tax-free.
  • Higher rate tax payers can earn up to £500 interest tax-free.

Find out more 

Are ISAs still important?

With many Cash ISAs now offering flexibility around withdrawals and deposits, and the introduction of the Personal Savings Allowance meaning most taxpayers won’t have to pay tax on their savings, it’s easy to question what benefit Cash ISAs retain over regular savings accounts.

However there are several reasons why it may still be best to save into a Cash ISA first, before looking at any other type of savings account:

Show me the reasons why ISAs are still important

  • Basic rate taxpayers have a Personal Savings Allowance of £1,000, and higher rate taxpayers receive a £500 Personal Savings Allowance. As interest rates rise, the interest earned on non-ISA savings will have a greater likelihood of becoming taxable, so ISAs continue to be an excellent way to maximise the return on savings.
  • Additional rate taxpayers don’t receive a Personal Savings Allowance, and so still need to save in an ISA to achieve tax benefits.
  • Fixed rate savings accounts mean you must lock your money away, whereas Cash ISAs are more flexible. Under Government rules you must have access to your Cash ISA savings, even on fixed rate accounts (albeit withdrawals may be subject to a charge).

What are Flexible ISAs?

From 6 April 2016, ‘ISA flexibility’ came into effect and could significantly change the way you use your ISA.

A flexible ISA allows you to take money out and put it back in. Remember though, any money you put back in must be in the same tax year it was taken out so that it counts towards the same year's annual ISA allowance. You can only replace prior years' subscriptions back into the same ISA with your original ISA provider. If you close or transfer your ISA you will lose the ability to replace prior year subscriptions.

Some ISAs do not offer this flexibility. You can still withdraw money from your account. However, if you replace it later, this will use up more of your annual ISA allowance. And depending on how much you have already contributed, you might find you aren't able to replace all of it because you would exceed the annual limit.

ISA Flexibility - How Virgin Money supports you

We make it easy to ensure you always stay within your annual £20,000 ISA subscription limit for your flexible ISA.

We track all of your payments and withdrawals for your flexible ISA to provide you with a total subscription amount. And this total amount is what we treat as you having paid into your ISA.

Key questions about ISA flexibility

Do all providers offer flexible ISAs?

Providing flexible ISAs is optional for providers, and so be sure to check whether or not your chosen provider offers this before opening an account – as remember, you can only open and subscribe to one Cash ISA each tax year.

Are all ISAs flexible?

Not all ISAs are flexible, however here at Virgin Money our Easy Access Cash ISAs are fully flexible. This means you have the freedom to make deposits and withdrawals as often as you like as long your total deposits don’t exceed the ISA allowance for that tax year.

Remember, any money you put back in must be in the same tax year it was taken out. You can only replace prior years' subscriptions into the same ISA with your original ISA provider. If you close or transfer your ISA you will lose the ability to replace prior years' subscriptions after transfer.

What if I make a withdrawal from a non-flexible ISA?

The replacement of any money withdrawn from a non-flexible ISA will count as an ISA subscription towards your ISA allowance. If you are unsure whether your ISA is flexible, check with us before you make a withdrawal.

Who keeps track of my ISA allowance and what I have subscribed?

It is still your responsibility to keep track of how much of your ISA allowance you have used and now you will need to take into account any withdrawals that you have made from a flexible ISA.

You can ask your ISA provider(s) to confirm what your remaining ISA allowance is with them at any time. But remember your ISA provider will not know about any money you have paid into any other ISA.

What can I withdraw?

All flexible withdrawals have to be made in cash, so if you have a Stocks & Shares ISA or an Innovative Finance ISA you might need to sell investments to raise money before you withdraw it.

Any fees that are charged to your ISA do not count as a flexible withdrawal, nor do transfers to another ISA or any money removed at the request of HM Revenue & Customs.

For more details of withdrawals that do not count as flexible withdrawals you will need to check your flexible ISA terms and conditions.

What happens if I transfer my flexible ISA?

If you want to transfer money you’ve paid into a flexible ISA in the current tax year you must transfer all of it. For previous years, you can choose to transfer all or part of your savings. You will need to contact the ISA provider you want to transfer to and fill out an ISA transfer form to move your ISA.

Where you are transferring only a current year ISA – the old provider will tell the new provider how much of your ISA allowance you have used. That is the amount paid in, less the amount withdrawn. If the amount you have withdrawn is more than you paid in for example, you have withdrawn some income or interest credited to the account, your old ISA provider will give your new ISA provider a total ISA subscription of £0 to show you have your full ISA allowance available with them. You will not be able to replace any excess with the new provider without it counting towards your ISA allowance.

Where you are transferring all of a previous year’s ISA, any withdrawals not replaced at the time of the transfer cannot be replaced with the new provider without counting towards your current year’s ISA allowance. But you can make replacements with your old provider if they keep your ISA open. Not all ISA providers will keep your ISA open so you will need to check with your ISA provider or your flexible ISA terms and conditions as they can vary between ISA providers.

Where you transfer only some of a previous year ISA any withdrawals not replaced at the time of the transfer can be replaced with the old provider without counting towards your ISA allowance.

What is the Personal Savings Allowance?

On 6 April 2016 the Government introduced the Personal Savings Allowance. The Personal Savings Allowance is great news for savers as it means that basic rate tax payers won’t pay tax on the first £1,000 of interest they earn. The allowance is £500 for higher rate tax payers, and additional rate taxpayers won’t receive an allowance.

Previously tax has been charged at 20% for basic rate taxpayers. So for every £80 previously received in interest, most savers will now receive £100.

From the 2016/2017 tax year all banks and building societies automatically stopped deducting tax on the interest earned from your savings.

Key questions about the Personal Savings Allowance

What is savings income?

Savings income includes:

  • Interest from banks, building societies and other account providers (such as credit unions and NS&I)
  • Interest distributions (but not dividend distributions) from authorised unit trusts, open-ended investment companies and investment trusts
  • Income from Government or company bonds
  • Some types of purchased life annuity payments and gains from certain contracts for life insurance

What if my annual interest exceeds the limits?

If your annual interest exceeds your Personal Savings Allowance, HM Revenue & Customs will amend your tax code and arrange for the tax element owed to be deducted from your salary or pension.

FSCS - Protecting your money

Save with confidence

As we're covered by the Financial Services Compensation Scheme, savings in a Cash ISA or Stocks and Shares ISA are covered up to £85,000 per person.

View the FSCS guarantee