Earlier this year, the government not only introduced the Innovative Finance ISA, they also launched the flexible ISA. But what exactly does this mean, and how can it help you?
Well, the Flexible ISA works along exactly the same lines as other ISAs: you deposit an amount up to your annual allowance (this year it’s £15,240), and watch as the tax-free interest builds up.
There’s one key difference though: the flexible ISA allows you to withdraw from your account, and then refund up to the amount withdrawn without contributing to your annual subscription. Similarly, you can withdraw some or all of your historic ISA balance, and put the amount withdrawn back in at a later date. It’s worth noting this only applies as long as you don’t transfer your ISA to another provider.
Before flexible ISAs were introduced, any cash you put into your ISA would count towards your annual ISA allowance, regardless of whether or not you were replacing any money that was previously withdrawn. So any withdrawals were effectively reducing the amount you could save each year under a tax-free wrapper.
Compared to a traditional ISA, the new flexible ISA is a lot fairer, and doesn’t penalise you when life happens and you need a little extra cash during the year.
Tax-free earning at Zopa
There are different types of ISA on the market – help-to-buy, stocks & shares, cash, junior, and a lifetime ISA on the way. However like other P2P lenders, Zopa will only be offering the innovative finance ISA once we get our FCA approval. Read more about the status of our ISA approval. And because flexible ISAs are better for customers, we’ve been building our ISA to be flexible.
Alongside the flexible ISA the government also introduced the Personal Savings Allowance (PSA), where lower bracket tax-payers can earn up to £1,000 per year (£500 for higher earners) in savings income tax free. This is completely separate from your ISA and doesn’t contribute towards you ISA subscription. Your Zopa earnings are covered by your PSA, which means you’re already benefitting from tax-free earnings with Zopa.