The case for flexible Isas

  • Describe how flexible Isas work
  • Identify the advantages of flexibility
  • Explain when flexible Isas are not flexible

Replacement subscriptions

No applications or declarations are required under the rules for an investor to make a replacement subscription.

The replacement subscription can only be made in cash, with an exception in the form of shares where they are transferred from a schedule 3 SAYE option scheme or schedule 2 SIP.

In contrast for the priority order of withdrawals, replacement subscriptions are treated as replacing previous years' funds first and then cash subscribed in the current year. 

I have explained how withdrawals and replacement subscriptions work in practice using the three possible Isa accounts that you might encounter with clients.

1) Flexible Isa with current tax year funds only

Money withdrawn from a flexible Isa will be from current year funds only and can be replaced before the end of the same tax year without using any more of the investor’s annual subscription allowance. The replacement subscription could be to another Isa, but the investor must not be subscribing to another Isa of the same type in the tax year as a result of the replacement.

Where a flexible Isa has current year subscriptions only, any withdrawals over and above the amount subscribed – for example, income or capital growth – can only be replaced in that Isa.

Where a replacement subscription from a flexible Isa is made to a Lifetime Isa, this will count towards the Lifetime Isa payment limit (but not the annual overall Isa subscription limit).


Mahmood subscribed £20,000 to his flexible stocks and shares Isa on 6 April 2021. On 1 November the value of the investments is £22,000 and he sells investments and withdraws cash of £21,000. His ‘net’ current year subscriptions at this point are £0 and he can use his full annual subscription allowance of £20,000 between his stocks and shares, or any cash or Lifetime or Innovative Finance Isa he subscribes to in the tax year. However, the withdrawal over and above the amount subscribed of £1,000 (£21,000-£20,000) can only be replaced in his stocks and shares ISA.

2) Flexible Isa with previous tax year funds only

Money withdrawn from a flexible Isa containing previous year’s subscriptions can be replaced (up to the value of the withdrawal) and will not use any of the current year’s subscription allowance, but only if paid into the same account, in the same tax year.

3) Flexible Isa with subscriptions from both current and previous tax years

Withdrawals will count against any money subscribed in the current year first, with any excess being treated as coming from a previous year. Upon replacement in the same tax year, the previous year’s subscriptions will be treated as being replenished first, followed by those made in the current year.

The Isa manager does not need to record whether a replacement subscription relates to current or previous years' subscriptions.

When a withdrawal closes the Isa

If the withdrawal closes a flexible Isa, then the Isa manager would need to reopen the Isa to accept a replacement subscription before the end of the tax year. This might not always be possible and would depend on the Isa manager’s terms and conditions.

Flexible Isa transfers

As with all Isas, the value of any current year subscriptions (known as the current year account) must be kept together on transfer. This means any current year account must be transferred in full.