You might have already heard that an Individual Savings Account (ISA) is a tax-efficient way to save or invest your money.
But do know what the withdrawal rules of an ISA are? Can you actually take money out of an ISA? And if you can, what are the consequences?
Let’s take a look.
Can you take money out of an ISA?
For most ISAs, the rules around withdrawal are largely the same. You can take money out whenever you want without affecting the tax benefits. Any amount you withdraw from an ISA is not taxable.
However, some penalties or fees may apply for taking money out of certain types of ISAs, so always check the terms and conditions carefully first.
For example, there are strict rules around withdrawing money from a Lifetime ISA. Any withdrawal outside these rules attracts a penalty of up to 25% of your withdrawal amount.
What happens when you withdraw from an ISA?
The consequences of taking money out of an ISA depend on whether it’s a flexible ISA or not.
If you have a flexible ISA, you can take out money and replace it during the same tax year without the replacement counting towards your annual ISA allowance.
Let’s say you deposit £20,000 into a cash ISA (which is the total allowance for this type of ISA), and then you take out £3,000. You can replace the £3,000 at a later date in the same tax year without breaching your allowance, even though you will technically have deposited a total of £23,000.
In contrast, with a non-flexible ISA, if you reach your limit and then withdraw money, you can’t put it back within the same tax year.
Not all providers offer flexible ISAs, so always check before you make any withdrawals.
Currently, in the UK, flexibility in only offered through cash ISAs, Innovative Finance ISAs and cash held within stocks and shares ISAs.
It’s not available for Junior ISAs, Lifetime ISAs, or any element of stocks and shares ISAs that are not cash (e.g. shares, bonds or funds).
How long does it take to withdraw money from an ISA?
If you withdraw from a cash ISA, it should take a maximum of one day for the money to show in your account.
For a stocks and shares ISA, withdrawals typically take between three and seven days, but it can sometimes take longer. That’s because your investments may need to be sold first.
If you need your money by a particular day, it’s a good idea to make your withdrawal request ahead of time to make sure it’s processed by the time you need it.
Bear in mind that if you want to make an emergency withdrawal from a stocks and shares ISA, there is a risk that the value of your investment will have gone down due to fluctuations in the market.
Can you transfer money from one ISA to the other?
If you want to change providers, for example, because you’ve found another provider that’s offering a better interest rate, then you must ask your new provider to arrange the transfer in order to maintain the tax-free status of your savings. Note also that some providers may not accept ISA transfers.
If you simply withdraw your money or close the account, it becomes taxable again.
In addition, your current provider might charge you a penalty for transferring, so check for any fees or charges beforehand to determine whether the transfer is worth it.
If you’re considering an ISA transfer, check out our top stocks and shares ISAs to find a new provider that works for you.
Great for frequent investors or those who prefer funds
Hargreaves Lansdown Stocks and Shares ISA *
| Trading Commission | £5.95 – £11.95 |
| Account Management Fee | From £0.00 |
- Pros & Cons
- Fees & Charges
Pros
- Strong reputation and track record.
- Uninvested cash earns interest.
- Access to thousands of UK and international investments
- Active investors enjoy reduced trading charges.
- No inactivity or withdrawal fees.
- Intuitive platform and mobile app.
- Free access to investment research and market insights.
Cons
- Standard dealing charges are higher than average.
- Limited charting and technical tools.
- Relatively high annual fees for fund, shares, and ETF holdings.
- No support for fractional share trading.
- Share dealing (online) – By default, HL charges £11.95 per trade. However, if you execute 10 or more trades in a single month, this rate drops to £8.95, or £5.95 if you execute 20 or more trades.
- Share dealing (phone & post) – HL charges 1% of the trade value as a fee when trading via the phone or through postal dealing. There is a minimum £20 trading fee, but the maximum charge is £50 per trade.
- Foreign exchange – When trading internationally, HL charges a foreign currency exchange fee depending on the size of the transaction. This fee is 1% for the first £5,000, 0.75% for the next £5,000, 0.5% for the next £10,000, and 0.25% for any amount over £20,000.
- Fund charges – When holding investment funds in an account, HL charges an annual holding fee. The amount is based on the value of your investment. The first £250,000 incurs a 0.45% fee. If investments are worth between £250,000 and £1m, the fee decreases to 0.25%. If investments are worth between £1m and £2m, the fee decreases again to 0.1%. And any value beyond £2m incurs no fees.
- Account charges – Beyond the previously mentioned Fund charges, investors also have to pay a 0.45% annual fee for all non-fund investments up to a maximum of £3.75 per month.
- Deposit fee – None.
- Withdrawal fee – None.
The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.