Withdrawing from an ISA
You can take money out of most ISAs whenever you want, without affecting the tax benefits. However, some types of ISAs have specific rules and costs around withdrawing, like the Lifetime ISA. Certain providers may even charge you to make a withdrawal – so always check the terms before you sign up.
What happens when you withdraw money from an ISA?
Withdrawing from an ISA, unless it’s a flexible cash ISA, affects your annual ISA allowance: for most ISAs, when you withdraw money from it, that part of your allowance remains used. This means, unless you have a flexible cash ISA, if you reach the ISA limit and then take money out, you can’t put the money back in within that tax year.
So what does this look like in practice? Here’s an example:
You have a £20,000 ISA allowance. You contribute £15,000 to an ISA during the current tax year. Then, before the end of the tax year, you withdraw £5,000.
The remaining amount you can still contribute during the same tax year is:
- £5,000, for most ISA types
- £10,000 if it’s a flexible cash ISA.
Do you pay tax when you withdraw from an ISA?
You don’t lose any tax benefits when you withdraw money from an ISA.
Withdrawing from different types of ISA
For most ISA types, the withdrawal rules are the same – you can take money out whenever you want. However, some types of ISA have specific rules.
If you have a Lifetime ISA, you can withdraw money in three cases only:
- to buy your first home,
- once you’re 60 or older
- if you’re terminally ill, and have less than 12 months to live.
If you withdraw from a Lifetime ISA for any other reason, you will be charged a 25% government penalty on the amount you withdraw.
If you are saving for your first home with a Help to Buy ISA and withdrawal from it for a reason other than buying your first home, you will lose the associated tax benefits. Any funds withdrawn before closing your Help to Buy ISA will not count towards the Government Bonus.
If you have a fixed-rate cash ISA, you may be unable to access your money during the fixed term, although your provider will have specific rules around withdrawals, partial withdrawals and early closure. There will most likely be charges or penalties associated with taking money out of your ISA during the fixed term.
If you have a flexible cash ISA, you can withdraw money and put it back in during the same tax year without reducing your current year’s allowance.
No matter which type of ISA you have, always first check with your provider as to the rules and costs associated with withdrawing from it.
Withdrawing from a Nutmeg ISA
If you have a Nutmeg stocks and shares ISA, we don’t charge you a fee for any withdrawals.
If you have a Nutmeg Lifetime ISA, Nutmeg won’t charge you to withdraw money either. However, you will be charged a 25% government penalty if you take money out before you’re 60 and it’s not to put towards your first home up to a value of £450,000 or because of a terminal illness.
Tax treatment depends on your individual circumstances and may change in the future
It’s important to remember that, for both these types of ISA, the money you take out can’t be put back in to an ISA in the same tax year – that part of your ISA allowance can’t be used again.
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. A stocks and shares ISA may not be right for everyone and tax rules may change in the future. If you are unsure if an ISA is the right choice for you, please seek financial advice.