ISAs - Can money be withdrawn?

Your money can be withdrawn from an ISA at any time. However some Cash ISA accounts do have a notice period with restrictions or penalties on withdrawals during a fixed term. You will also normally need to leave a mini- mum balance in the ISA account to leave it open.

ISAs are really designed as medium to long-term savings vehicles of five to ten years, though, and any decision to cash in part or all of your investment should never be taken lightly.

Obviously, if you withdraw money from an ISA, it loses its tax-free status. Any income or gains arising on amounts withdrawn from your ISA will no longer be free from personal tax.

Less obviously, any money you withdraw cannot be simply returned to the ISA if you change your mind. That’s because your annual ISA allowance is a fixed, rather than a net, amount: it doesn’t matter how much you withdraw, you can only pay in up to your set allowance each year.

If you have other money held on deposit in short-term savings accounts, it’s usually sensible to make withdrawals from these before you touch your ISA.

However, it is quite possible to decide that even with- out the tax breaks, an alternative investment of somekind or a different use for the money – such as paying off a mortgage – offers a better return than that which you are getting from your current ISA account. This is a matter of personal judgement but to make an informed decision it helps if you are aware of what deals are currently on the market, a subject covered later on in this guide.

One option that can be considered,
 especially by those planning to retire, is to draw down income from an ISA, which of course will be tax-free. If you have a Stocks and Shares ISA, you should be able to choose whether to take the income generated if you wish. Alternatively, it may be automatically reinvested or held on deposit until you tell the ISA manager what you want to do with it.

Typically, if you decide to take the income it will be paid monthly into your nominated bank or building society account. If you go for the automatic reinvestment option, the manager will hold the income in your ISA account until it reaches a minimum level then invest it in the stock or fund in question.

When it comes to a Stocks and Shares ISA, withdrawing a signifi- cant part of your savings will almost inevitably involve cashing in some of the investments in the portfolio. The decisions to be made here are the same as those for any portfolio of shares, bonds or funds.

 There is nothing wrong with taking a profit, and in an ISA context this is especially true as there is no tax on the capital gain. However, if you do leave the money in the ISA and reinvest any profits in new holdings, it is more likely that the portfolio will grow in value over the years and eventually allow you to make fuller use of the CGT break.

Of course, the reverse could happen: you could reinvest the profits in something that turns out to be a real dog and loses you money – losses which, as we’ve seen, cannot be used to offset gains outside the ISA. An ISA wrapper is no guarantee of stock market success
so investment decisions need equal
care in or out of an ISA.

 

This ‘How to’ guide is produced by Shares Magazine and is only for general information and use, and is not intended to address particular requirements.

The value of investments and the income derived from them can go down as well as up. Past performance is not necessarily a guide to future performance.

 

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