What Happens If I Take Money Out of My ISA?

ISA withdrawals may impact your tax-free allowance. Learn the rules for Cash, Stocks & Shares, Lifetime, and Flexible ISAs, plus transfer options.

ISAs allow UK savers to earn tax-free interest, dividends, and capital gains, but withdrawing money can have consequences depending on the type of ISA you hold. Some ISAs allow you to withdraw and replace funds without affecting your allowance, while others come with restrictions or penalties.

This guide explains ISA withdrawal rules, tax implications, charges, transfer options, and how different types of ISAs handle withdrawals.

Can You Withdraw Money from Your ISA Account?

You can withdraw money from most ISAs at any time, but the impact depends on whether your ISA is flexible and what type of ISA you have.

  • Flexible ISAs allow you to withdraw and replace money within the same tax year without affecting your ISA allowance.

  • Non-flexible ISAs do not allow you to replace withdrawn funds without using more of your annual ISA limit.

  • Some ISAs have withdrawal restrictions (e.g., Lifetime ISAs have penalties for early withdrawals).

What Happens When You Take Money Out of an ISA?

  • If your ISA is flexible, you can withdraw and redeposit the same amount within the same tax year without it affecting your allowance.

  • If your ISA is not flexible, any withdrawal reduces your tax-free savings permanently for that tax year.

  • Some ISAs, like Lifetime ISAs (LISAs), impose penalties if you withdraw funds for reasons other than buying a first home or retirement.

Do You Pay Tax When You Withdraw from an ISA?

ISA withdrawals are completely tax-free, meaning you won’t pay income tax, dividend tax, or capital gains tax on money withdrawn from any ISA. However, once the money is taken out, it loses its tax-free status unless you deposit it back into a flexible ISA within the same tax year.

Are There Any ISA Withdrawal Charges?

Most ISAs allow fee-free withdrawals, but some have restrictions:

  • Cash ISAs: No withdrawal fees, but interest rates may be lower for instant access accounts.

  • Stocks & Shares ISAs: No withdrawal fees, but investments may lose value when sold.

  • Innovative Finance ISAs: Some providers charge withdrawal fees, depending on platform terms.

  • Lifetime ISAs: Withdrawals before age 60 (except for a first home purchase) incur a 25% penalty, meaning you lose some of your original deposit.

Withdrawing from Different Types of ISAs

Cash ISA Withdrawals

Cash ISAs offer easy access, especially if they are instant access ISAs. Fixed-rate Cash ISAs may have early withdrawal penalties if funds are taken out before the term ends.

Stocks & Shares ISA Withdrawals

Withdrawing from a Stocks & Shares ISA requires selling investments first. This process can take a few days, and the value of investments may rise or fall before withdrawal.

Innovative Finance ISA Withdrawals

Some Innovative Finance ISAs have withdrawal restrictions based on the platform. Early withdrawals may result in loss of interest or penalties.

Lifetime ISA (LISA) Withdrawals

Withdrawals from a LISA before age 60 (unless for a first home) incur a 25% government penalty, meaning you lose part of your own savings as well as the bonus.

Transferring an ISA vs Withdrawing

Transferring an ISA means moving your funds from one provider to another without losing tax-free benefits. Unlike withdrawals, transfers do not affect your annual ISA allowance.

Key Differences

  • Withdrawals remove money from your ISA, potentially losing tax-free benefits.

  • Transfers keep funds within the ISA system, maintaining tax-free status.

Withdrawing and Redepositing Money

If you withdraw money from an ISA and later redeposit it, the impact depends on whether your ISA is flexible.

  • Flexible ISAs allow withdrawals and deposits within the same tax year without affecting your allowance.

  • Non-flexible ISAs do not allow re-deposits without using more of your annual ISA limit.

Final Thoughts

Withdrawing money from an ISA is tax-free, but whether you can redeposit it depends on flexibility rules. If you plan to move money between ISAs, consider transferring instead of withdrawing to retain the tax benefits.

To check your ISA’s withdrawal rules, visit your provider’s website or GOV.UK for details on tax-free savings.