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Which asset classes beat inflation after the pandemic? 

What do we want? We want inflation protection, we want it now, and we want it, ideally, in a highly-reliable set-and-forget format please.

I’m a passive investor after all, and I’ve been hunting for alternatives since the passive investor’s choice of inflation insulation – a short-duration index-linked bond ETF – had a [checks glossary of terms] ‘mare during the post-Covid CPI blow-up.

The purpose of this article, then, is to run through the list of other potential antidotes to see how they actually performed when prices boiled over.

We’ve previously looked at the scale of defeat for short-duration index-linked bond1 funds, and also the so-so performance of the most obvious replacement – a DIY portfolio of individual index-linked gilts.

Here’s a quick refresher via a chart:

Data from JustETF, Tradeweb and ONS. February 2025

As you can see, neither of our index-linked contenders actually kept up with inflation. Disappointing.  

Partly the problem was that inflation-linked bonds were saddled with negative yields going into the pandemic inflation. And partly that the subsequent rise in yields – from negative to positive – inflicted a substantial price hit. 

Today a portfolio of individual linkers looks a good inflation hedge because they’re on positive yields. 

But assembling such a portfolio requires some work. For many, it seems like an arcane and fiddly task – like building your own microcomputer in the 1970s and ’80s. 

Isn’t there a BBC Micro, ZX81, or failing that, a VIC-20 of inflation containment you can just buy off the shelf? By which I mean a fund full of assets that eat rising prices for breakfast? 

We’ll answer that in the next six charts. They show how most assets that could be turned to as your chief inflation-tamer dealt with the money monster from October 2021 to year-end 2024.

Note: all returns in this article are GBP nominal, dividends reinvested.

Inflation vs money market funds

How did cash do, as represented by money market funds?

Data from Heriot-Watt/ Institute and Faculty of Actuaries/ESCoE British Government Securities Database and ONS. February 2025

Cash was comfortably trashed.

For comparison, the annualised returns are:

  • Cash: 3.5%
  • Inflation: 5.9%

Money market rates were positive versus inflation in 2023 and 2024, but not enough to make up the lost ground. What’s more, money markets have been a real-terms loser all the way back to 2009 (bar a 0.4% gain in 2015).

Cash is popular now. Rates are high and bonds burned many investors. But money market funds have historically provided a flimsy inflation defence.

Inflation vs gold

Gold had a stormer. In fact, without wishing to ruin the surprise gold was the best asset in our round-up. (Oh dear, I’ve ruined the surprise!)

Data from The London Bullion Market Association and ONS. February 2025

Annualised returns:

  • Gold: 15.9%
  • Inflation: 5.9%

Gold has a reputation as an inflation hedge. A distinction that’s surely been burnished by its recent performance.

But gold isn’t really tethered to inflation.

Even the few years covered by the chart indicate it dances to a different tune. Inflation whips up in late 2021 and absolutely rages in 2022. However, we’re firmly back in the realms of standard-issue 2.5% inflation by 2024.

Whereas gold is on fire in 2024, does merely okay in 2023, and registers a 0.1% real terms loss in 2022.

Overall, gold holders can be very happy with their choice this time, but its future reliability remains an enigma.

It’s entirely plausible that gold is propped up in inflationary situations because many people believe it is an inflation hedge.

They take refuge in gold as inflation rates climb while bailing on asset classes that succumb to price pressure.

The problem is the lack of:

  1. A solid underlying theory which explains gold’s role as an inflation shield.
  2. A string of historical examples that provide convincing proof that gold withstands the heat when CPI melts-up.

Gold at least seems to thrive during periods of great uncertainty – and inflationary shocks do contribute towards a general sense of systematic instability.

Inflation vs commodities

Raw materials are part of the very physics of inflation itself. Can they help us?

Data from Bloomberg and ONS. February 2025

Annualised return:

Commodities scored a draw – precisely matching the rise in headline rates over the period.

However, there’s a canary in the coal mine relationship between commodities and high inflation.

Rising raw material costs feed inflation, which means that commodities prices have historically front-run UK CPI by a year or so. If we zoom out to include commodities’ 28% gain in 2021, then we discover that the asset class did comfortably beat inflation after all.

There is also good evidence that commodities have historically outperformed other asset classes when inflation flares up. I’ll dig into this in more detail soon.

The other point worth making is that commodities are highly volatile and negatively correlated with equities and bonds. Rebalance sharp-ish when commodity prices spike and you may earn a juicy rebalancing bonus for your trouble.

Inflation vs World equities

The next chart seems to be saying: forget all the fancy stuff, just focus on pound-cost averaging and keep your head:

Data from MSCI and ONS. February 2025

Annualised return:

  • World equities: 10.8%
  • Inflation: 5.9%

Equities slipped below inflation’s high-water mark in 2022 and 2023. Only to surface and rise like a continental crumple zone, once the price pressure subsided.

Historically equities have typically reacted to inflation like it’s an essential vitamin. The right dose keeps stocks – and the rest of the economy – humming. But too much and financial weakness, nausea, vomiting, and cramps follow.

Still, equities have always recovered quickly once inflation has returned to reasonable levels. We saw that again this time.

Perhaps young, resilient accumulators should forget about hedging inflation and focus on outrunning it.

Inflation vs all-comers

Just for fun, here’s everything piled into one uber bar-room brawl of a graph:

If your portfolio was this diversified then you could hardly have done much more. Here’s the full rundown of annualised results, along with cumulative returns in brackets:

  • Inflation: 5.9% (20.6%)
  • Linker fund: 0.6% (2.1%)
  • Cash / money market: 3.5% (11.9%)
  • Individual linker portfolio: 4.1% (14%)
  • Commodities: 5.9% (20.4%)
  • World equities: 10.8% (39.5%)
  • Gold: 15.9% (61.4%)

Personally-speaking, the recent price spiral has profoundly reshaped my portfolio. I have since sold my linker fund and bought individual index-linked gilts, gold, and commodities instead.

Hopefully that means that – in tandem with a chunky equity allocation – my portfolio is better equipped to meet future inflationary bow waves.

Still, if you go to an anti-inflationary arms fair, you’ll meet plenty of people willing to sell you on all manner of other solutions…

Inflation countermeasure or counterfeit?

Here’s a selection of oft-cited inflation-busters, charted over the same period as before only this time in ETF form:

Data from JustETF

As a range-finder, an MSCI World equities ETF (cyan line) hits the right-hand side of the graph at the 39.5% mark.

Inflation itself would score 6% – about double the red real estate line.

WOOD, the global timber ETF (magenta line), trails the pack with a cumulative return of 1.2%. I looked at UK property, too, which was the only fund to post a negative return over the period.

The clear winner is the oil and gas equities ETF (blue line). Fossil fuel supply shocks are often a large component of unexpected inflation. You’ll recall that Putin invaded Ukraine in February 2022, and unleashed energy blackmail against Europe soon after.

I’ve also included an oil and gas commodity futures ETC (yellow line). Initially it leaps too, hedging inflation up to year-end 2023. But it was no inflation-beater beyond that, lagging CPI by the end of 2024.

It’s intriguing that infrastructure (orange line), real estate, and timber all enjoyed bounces in early 2022 as inflation bit hard. But only infrastructure maintained its momentum before falling behind inflation in 2023.

True, infrastructure was an inflation-beater again by the end of 2024. But it only delivered half the value of the MSCI World during the period.

Finally, the Momentum and Quality factor ETFs haven’t added anything new beyond extra squiggles on the graph. It’s only a short timeline, but their correlation with World equities is much more apparent than any link to inflation.

Over-inflated

Okay, ‘less is more’ is the phrase that always comes to mind after a strong bout of inflation – or to one of my posts. Once again I’ve failed to master the art of shrinkflation when it comes to Monevator word counts.

So next time I’ll dig deeper into the UK’s extensive historical archives of high-inflation episodes to see which asset classes held the line against successive waves of money rot.

Time to slap The Investor with an enormous wage demand!

Take it steady,

The Accumulator

  1. Colloquially known as ‘linkers’. []
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Weekend reading: Nada Saba

Weekend Reading logo

What caught my eye this week.

It’s not been easy to find reasons to be optimistic about the shrinking British stock market in recent years.

But I think how private investors, fund managers, the investment trust industry, and investment platforms worked together to defeat US firm Saba’s designs on the trust sector might qualify.

As I wrote last month, there was something of a last alliance vibe about this coalition of the unwilling.

But so comprehensively was Saba defeated – it lost all seven showdowns, and on large turnouts of private investors who overwhelmingly voted no – that the result was quite heartening.

This was shareholder democracy in action, and I’m all for it.

Moreover the platforms showed that they can facilitate such a democracy if called upon.

Your vote counted

In the early days of Monevator, lots of readers urged me to write articles about the evils of nominee share ownership and the demise of paper share certificates.

I saw their point. But I also saw the changes as inevitable and not the most important battle to win compared to, say, lowering fees or spreading knowledge about index fund investing.

Anyway such appeals stopped long ago, whether because the proponents accepted the change or because they moved on to a realm where their voice was even less influential than here on this mortal coil.

But wherever they are, I hope they’re heartened too.

Nominee ownership and representation via electronic voting on platforms does not inevitably mean disenfranchisement, or to be kicked around by those with the billions and the biggest boots.

And that is good news, whether or not you agreed with Saba’s charges and proposals. (Personally I share some of his complaints. But I was not persuaded by the remedy he was offering.)

He gets knocked down, but he gets up again

Saba is now going after a new quartet of trusts, suggesting they be turned into open-ended funds.

Curiously, Moguls-featured Pershing Square isn’t on the list despite its yawning discount.

Anyway, we’ll have to whether Saba’s relentlessness eventually exhausts the opposition.

More UK investors are apparently getting in on the act too. For example, the hugely talented Christopher Mills is said to be raising money for a trust that will work to close discounts at rivals.

As somebody who sees rife opportunity in the trust sector, I’m not surprised.

Though ironically two Mills-affiliated investment trusts themselves sit on 25-30% discounts…

Passive engagement

I’ll leave more comment in that direction for our Moguls member posts though.

Indeed for most Monevator readers who sensibly invest in index funds, this might all seem a bit irrelevant.

But I’d suggest it’s very relevant.

As index funds take up an ever-larger share of the overall investing pie, it’s really important that cheap and effective investing for the masses doesn’t become a lazy synonym for disenfranchised investors and the fracturing of shareholder democracy.

That charge has already being made as index funds have grown to dominate the investing landscape. For example, from the New Statesman:

The upshot of this mix is an ownership regime with a chief interest in maximising assets – whether by minimising costs to take market share, or by promoting general asset price inflation – and takes little interest both in how capital is allocated and how any company within its diversified portfolio is governed.

In other words, such an ownership regime takes no ethical stance on what those companies produce, how they are run, what they sell or what impact they have on the planet.

It’s a valid concern.

Squint though and you can see this battle with Saba as upholding the thin end of the same wedge that ends with Vanguard cutting fees further in the US recently.

The common thread is what’s ultimately in the long-term interests of ordinary shareholders.

Perhaps there’s even a future where even index fund investors get to vote their wishes somehow on the vast range of issues raising by the firms their tracker funds hold – albeit perhaps by aggregating their general wishes at the fund manager level?

Time will tell. But I’m more hopeful about that sort of thing than I was two months ago.

Have a great weekend.

p.s. Two corrections! We featured a wonky graphic in the email of TA’s linker piece on Tuesday. Thanks to reader Richard for the heads-up, and see the corrected post for the right graph. Then the next day TA achieved a – very rare for him – double by misstating the age you can open a cash ISA. You must be 18, of course. Sorry cash-loving youngsters! And cheers to reader Tommo for spotting what I missed.

[continue reading…]

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UK tax deadline: how to make use of all your tax allowances post image

The tax year runs from 6 April to 5 April the next year. This means that the most crucial UK tax deadline occurs every April.

That’s because there exist various annual allowances and tax reliefs that you need to make use of to legally mitigate your income tax bill and stop taxes devouring your investment returns.

Most of these are ‘use it or lose it’ allowances with a 5 April deadline.

It’s no good bemoaning in June that you should have filled your ISA allocation by 5 April, but you were too preoccupied by the Donald Trump Show or the Six Nations rugby!

No point cursing if you create a £500 capital gains tax liability in July that you might have defused in March!

Ch-ch-changes

Of course you read Monevator. You know this kind of stuff. But it’s still all too easy to overlook something.

Especially when the tax rules keep changing! For example, the capital gains allowance was halved in the 2024-25 tax year to just £3,000.

So let’s run through a checklist of what to think about as the UK tax deadline draws near.

Follow the links in each section to go deeper.

ISA allowance

ISAs shelter investments from tax.

The annual ISA allowance is the maximum amount of new money you can put each year into the range of tax-free savings and investment accounts that comprise the ISA family.

The ISA allowance for the current tax year to 5 April is £20,000.

You cannot carry forward or rollback this ISA allowance. What you don’t use in the tax year is lost forever.

ISAs are a superb vehicle for growing your wealth tax-free. But the fiddly rules – seemingly made up by a bureaucrat with a grudge against mankind – are subject to change over time.

Watch out for rule tweaks

For example, as of the 2024-25 tax year you can now open multiple ISAs of the same type in the same tax year.

Previously you could only open one new ISA of each type in a tax year.

Note though that you can only contribute £20,000 in total to your ISAs a year – old or new. And it’s down to you to keep track of your running total.

Also, you can still only pay into one Lifetime ISA per year. The maximum contribution here is £4,000. This counts towards your £20,000 annual ISA allowance.

Another change is that you can now make partial ISA transfers – although not all platforms will accept them. (Under the old rules, if you contributed to an ISA and then wanted to transfer the funds to a different provider in the same tax year, you had to transfer all of that year’s ISA contributions).

And another: fractional shares can now be held in a stocks and shares ISAs. They’re listed as ‘fractional interests’ on this page of qualifying investments.

My co-blogger wrote the definitive guide to the ISA allowance.

Pension contributions annual allowance

There is a limit to how much money you can contribute to your pension in a given tax year while still receiving tax relief on those contributions.

It is sometimes referred to as the pension annual allowance.

Despite massive speculation with every Budget, the allowance is still £60,000.1

However the rules about inheritance tax and pensions were thrown into the Magimix blender in late 2024:

Note that saving into a pension is mostly a tax-deferral strategy. That’s because you’re eventually taxed on pension withdrawals, unlike money you take out of an ISA tax-free.

In theory this makes ISAs and pensions equivalent from the perspective of tax.

In practice though, the fact that you can also draw a special tax-free lump sum from your pension gives pensions an edge in tax-terms – albeit at the cost of locking away your money for years.

Weigh up the pros and cons of each tax wrapper. We think most people should do a bit of both.

You can reduce your marginal tax rate by making pension contributions, if you can afford to go without the money today. Those on higher-rate tax bands should definitely do the maths:

Personal savings allowance

Under the personal savings allowance:

  • Basic-rate taxpayers can earn £1,000 per year in savings interest without having to pay tax.
  • Higher-rate taxpayers can earn £500 per year.
  • Additional rate taxpayers don’t get any personal savings allowance.

Back when interest rates were very low, these savings allowances seemed quite generous.

But rising rates have changed everything. Even interest on unsheltered emergency funds can now take you over the personal savings allowance and see some of your interest being taxed.

Redo your sums. Higher-rate tax payers might look into holding low-coupon short duration gilts instead. Recently these have offered a lower-taxed alternative to savings interest.

Dividend allowance

As of 6 April 2024, the annual tax-free dividend allowance was reduced to £500.

Dividends you receive within the tax-free dividend allowance are not taxed. But breach the allowance and you’ll pay a special dividend tax rate on the rest, according to your income tax band.

You can avoid the whole palaver by investing inside an ISA or pension.

Capital gains tax allowance

Everyone has an annual capital gains tax allowance, or ‘annual exempt amount’ in the lingo of HMRC.

This allowance was halved to £3,000 from 6 April 2024.

It is (for now) frozen at this level.

Capital gains tax is levied on the profits you make when you sell or transfer most assets. These assets include everything from shares and buy-to-let properties to antiques and gold bars.

You can shield your gains from capital gains tax by investing within ISAs and pensions. Go re-read the relevant bits above if you skimmed them!

EIS and VCT investments

You can also reduce your taxes by investing in Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS).

These vehicles are mostly marketed at wealthy high-earners for whom the large income tax breaks are attractive.

But be aware that these tax reliefs come with all kinds of risks, rules, and regulations.

VCTs

VCTs are venture capital funds run by professional managers who make investments into startup companies.

But somewhat quixotically, VCTs don’t even pretend to try to deliver high venture-style returns for investors.

Instead they aim to return cash via steady tax-free dividends.

You can invest up to £200,000 a year into VCTs. You must hold them for at least five years to keep your 30% income tax relief.

VCT fund charges are invariably expensive, and the returns mostly mediocre – especially if you back out the tax reliefs.

EIS

EIS investing is even riskier. Qualifying companies are usually very young, and many investors buy into them via crowdfunding platforms rather than professional fund managers.

The quality of these EIS opportunities is extremely variable, and information usually scanty.

And while there have been a few big crowdfunded winners, the majority do poorly and often go to zero.

If you’re a baller who buys Lamborghinis before breakfast, you may already know you can put up to £1m a year into EIS investments. (Up to £2m if you’re investing in ‘knowledge intensive companies’).

Again, you can knock 30% of your EIS investment amount from your income tax bill – and there are other reliefs should things go wrong.

You must hold EIS investments for three years to qualify for the tax relief.

Most people shouldn’t put more than fun money into EIS or even VCT schemes, in our opinion. Certainly not unless they’re very sophisticated investors or getting excellent financial advice.

Check in on your tax band and personal allowances

The rate of income tax you pay depends on your total income from all sources. This includes salary, interest, dividends, pensions, property letting, and so on.

You add up all this income to get your total income figure.

You then subtract your personal allowance from the total to see which tax bracket you fit into.

Everyone starts with the same personal allowance, regardless of age:

  • This personal allowance is currently £12,570

Your personal allowance may be bigger if you qualify for Married Couple’s Allowance or Blind Person’s Allowance.

However the Personal Allowance goes down by £1 for every £2 of income above a £100,000 limit. It can go down to zero.

For England, Wales, and Northern Ireland, the income bands after deducting allowances are:

Income Tax Rate Income band
Starting rate for savings: 0% £0-£5,000
Basic rate: 20% £0- £37,700
Higher rate: 40% £37,701-£125,140
Additional 45% rate £125,141 and above

Source: HMRC

Note: If your non-savings taxable income is above the starting rate limit, then the starting savings rate does not apply to your savings income.

Scotland has its own income tax rates.

As we’ve seen above, there are further allowances and reliefs for income from certain sources – such as dividends and savings – that can reduce how much of that particular income is taxable.

You can take steps such as making additional pension contributions or having a spouse hold certain assets to further reduce your taxable income or the highest rate of tax you pay.

Don’t make the UK tax deadline into a crisis

Scrambling to exploit these allowances before the tax year ends is not only stressful – it’s financially suboptimal.

If you had cash lying around that you might have put into an ISA earlier in the year, for example, then it could have been earning a tax-free return for months already.

But don’t blush too hard if you find yourself in this position.

Most of us are similar, which is why we wrote this article – and why the financial services industry bombards us with ISA promotions every March.

Try to automate your finances to invest smoothly and intentionally over the year.

And remember that April also brings warmer weather and longer days. Life is about much more than money and taxes!

Save and invest hard, take sensible steps to mitigate your tax bill, and enjoy life like a billionaire with whatever you’ve got leftover.

  1. Very high-earners are subject to a much-fiddled with taper that reduces their allowance. It is reduced by £1 for every £2 someone earns over £260,000, including pension contributions. []
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The ISA allowance: how it works and how to use it

How much can you put in your ISA piggy bank this year?

The ISA allowance1 is the maximum amount of new money you can put into the range of tax-free savings and investment accounts that make up the ISA family.

The ISA allowance for the current tax year to 5 April is £20,000.

The tax year runs from 6 April to 5 April the following year.

ISAs are a superb vehicle for growing your wealth tax-free. But the rules are complicated – seemingly made up by a bureaucrat with a grudge against mankind.

So this article is here to help you make the most of your ISA allowance.

What is an ISA?

ISA stands for Individual Savings Account. It’s the UK’s most important tax-free account for those savings and investments you want to access before retirement age.

ISAs are called tax-free wrappers because they legally protect the assets inside the account from:

  • Income tax on interest paid by cash, bonds, and bond funds.
  • Capital gains tax paid on the growth in value of assets such as shares, bonds, and funds.

You don’t even have to declare your ISA assets on your self-assessment tax return. This can save you a ton of tax paperwork.

Your assets remain tax-free as long they’re held in an ISA account… so long as you don’t have the cheek to die.

And you don’t lose out if you move abroad. (At least not from the perspective of the UK government.)

Unlike a pension, your ISA funds are typically2 accessible at any time.

You’re also not charged income tax on withdrawals from an ISA – again unlike a pension. So there’s no danger of being pushed into a higher tax bracket by the wealth you accumulate in your ISA.

  • Read up on ISAs Vs SIPPs to learn how best to allocate between them.

ISA accounts: what types are there?

ISA type Allowance3 Eligible investments Notes
Stocks and shares ISA £20,000 OEICs, Unit Trusts, Investment Trusts, ETFs, individual shares and bonds Age 18+. Can be flexible, but only cash can be added and withdrawn
Cash ISA £20,000 Savings in instant access, fixed rate, and regular varieties 18+. Again can be flexible
Innovative Finance ISA (IFISA) £20,000 Peer-to-peer loans (P2P), crowdfunding investments, property loans Age 18+. Can be flexible. Not covered by FSCS compensation scheme
Lifetime ISA (LISA) £4,000 As per cash ISA or stocks and shares ISA Open account from age 18 until 40. Pay in until age 50. Only use for buying first home, or from age 60, otherwise penalty charge
Junior ISA (JISA) £9,0004 As per cash ISA or stocks and shares ISA Open until age 18. Child may withdraw funds from 18+

The ISA allowances are currently frozen until 2030.

New Help to Buy ISAs are no longer available. If you have one already you can continue to save into it until 30 November 2029.

What about the NISA? NISA stands for New Individual Savings Account. This term described the new-style ISAs brought in by rule changes in 2014. Today every ISA follows the NISA rules, so the jargon is obsolete.

How much can I put in an ISA in 2025 – 2026?

You can save up to £20,000 of new money into your ISAs during the tax year 6 April 2025 to 5 April 2026

All £20,000 of your ISA allowance can go into one ISA5 or you can split it across any combination of the following ISA types:

  • Cash ISA
  • Stocks and shares ISA
  • Lifetime ISA (£4,000 annual limit)
  • Innovative Finance ISA

You can now pay new money into multiple ISAs of the same type. The exception is the LISA. You’re still restricted to just one of those per year. 

But you can open and fund two stocks and shares ISAs in the same year – or seven different cash ISAs if you feel the need – just so long as you don’t pay in more than £20,000 total into all your ISAs within the tax year.

What about money in previous years’ ISAs? That money does not count towards your annual ISA allowance for the current tax year.

For clarity’s sake, we’ll refer to assets in your previous years’ ISAs as old money. Assets in the current tax year’s ISAs we’ll term new money.

Interest, dividends, and capital gains earned on assets already held within an ISA do not count towards your ISA allowance.

Your £20,000 ISA annual allowance is a ‘use it or lose it’ deal. You can’t rollover any of it into the following tax year.

ISA transfers

An ISA transfer enables you to officially switch an ISA’s holdings to another provider. This way you avoid losing the tax exemption on your assets when moving them.

The transfer rules for any ISA opened in the current tax year are straightforward:

  • You can transfer any amount of your ISA’s balance from one provider to another. You used to have to transfer the whole balance of your current tax year ISA but that rule has been scrapped.
  • You’re free to transfer your ISA at any time to another provider. No buyer’s remorse with ISAs! 
  • You can also transfer to any other type of ISA, or even the same type. (Let’s live a little!)
  • If you transfer from one type of ISA to another, then you count as subscribing to the receiving ISA type. For example, you transfer from a cash ISA to a LISA. 
  • If you transfer from a Lifetime ISA to a different ISA type before age 60, you’ll have to pay a nasty penalty charge.
  • Beware any transfer fees imposed by your current ISA provider.
  • Transfers into a Lifetime ISA must not exceed the £4,000 current tax year limit.

The golden rule with any ISA move is always to transfer your money. Don’t just go “sod it!” and withdraw your cash in a flounce. If you transfer your ISA to another provider, your assets retain their tax-free status. If you just withdraw the money they don’t.

ISA transfer rules for previous years’ ISAs

You can transfer any amount from any of your old ISAs to the same or any other type of ISA.

  • Any number of your old ISAs can be consolidated into a new ISA of the same or different type.
  • Any of your old ISAs can be split by transferring a portion of the balance into multiple ISAs of the same or different types.
  • You can transfer to the same or different providers.

Transferring previous years’ ISAs leaves your current tax year’s allowance untouched.

For example, moving £40,000 from an old ISA into a new ISA still leaves you with a £20,000 ISA allowance for the current tax year.

You could transfer £4,000 into this year’s LISA from an old ISA (of any type), gain the government bonus, and leave your £20,000 allowance entirely intact.

This move maxes out your LISA allowance for the tax year. You must not then exceed that £4,000 LISA limit by transferring more cash into the LISA during the current tax year.

As before, make sure you transfer an ISA. Employ the new provider’s ISA transfer process to maintain your ISA money’s tax-free status. Don’t withdraw cash or re-register assets using any other method.

Withdrawing from an ISA

If you withdraw money from your ISA, can you replace it and not reduce your ISA limit?

Yes, but only if your ISA is designated as ‘flexible’.

If your ISA is not flexible (ask your provider) then a withdrawal reduces your tax-free ISA savings as follows:

  • You put £10,000 into your ISA. That reduces your ISA allowance to £10,000.
  • Next you withdraw £5,000 from your ISA.
  • You can only contribute another £10,000 into your ISAs this tax year.
  • Put that money in, and you’ll have added £15,000 to your ISAs in total by the end of the tax year.

Obviously £15,000 is less than £20,000, and so you’ll not have maximised your annual allowance.

Enter Flexible ISAs, which get around this problem. 

Flexible ISAs

Flexible ISAs let you withdraw cash and put it back in again later the same tax year without losing any of your current tax year’s ISA allowance or reducing how much you’ve saved tax-free.

The following ISA types can be designated as flexible:

  • Stocks and shares ISA
  • Cash ISA
  • Innovative Finance ISA

Flexibility is not an inalienable right. An ISA provider must decide to offer it and to deal with the administrative faff. Providers may offer flexible and inflexible versions of the same ISA type.

Here’s how the flexible ISA rules work:

  • ISA allowance = £20,000
  • Contributed so far = £10,000
  • Remaining contribution = £10,000
  • You choose to withdraw = £5,000

In this case you can still pay £15,000 into your flexible ISA before the ISA deadline at the end of the tax year because:

Remaining ISA allowance = £15,000 (£10,000 remaining contribution + £5,000 replacement of the withdrawal.)

A formula for calculating the remaining ISA allowance when you withdraw from a flexible ISA

If your ISA was inflexible then your remaining ISA allowance would be just £10,000. In other words, you couldn’t replace the withdrawn amount and it would have lost its tax-free status.

Flexible ISAs: contributing factors

Contributions made to an ISA in the same tax year as withdrawals work in this order:

  1. Replace the withdrawal.
  2. Reduce your remaining ISA annual allowance.

Withdrawals from an old flexible ISA can be replaced in the same tax year. This won’t reduce your current ISA allowance, provided the ISA is no longer active.6

When flexible ISAs contain assets from previous tax years and the current tax year it works like this:

Withdrawals

  1. From money contributed in the current tax year.
  2. From money contributed in previous tax years.

Replacement contributions

  1. Replace previous tax year’s withdrawals.
  2. Replace current tax year withdrawals.
  3. Reduce your remaining ISA annual allowance.

All replacement contributions must happen in the same tax year as the withdrawal.

Some providers say the withdrawal has to be replaced in the same ISA account you took it from.

More quirky than an octogenarian British actor

The ISA rules enable you to put your withdrawn money back into different ISA type(s) with the same provider, if they make that facility available.

Check your provider’s T&Cs. Or send them thousands of emails in BLOCK CAPITALS until they respond.

A flexible stocks and shares ISA allows you to replace the value of cash withdrawn. You can’t replace the value of shares, or other investment types that you moved out of the account, should they afterwards change.

You can sell down your assets, withdraw the cash, and then replace that cash later in the tax year, and buy more assets with it.

Dividend income should also be flexible in a flexible ISA scenario.

If you transfer your flexible ISA to another provider, then check its product is also flexible.

You may lose the ability to replace withdrawals if you don’t replace them before you transfer a flexible ISA. Again, this is determined by your provider’s T&Cs rather than the rules. (Subject them to a paid social media campaign to get an answer on this one.)

If your withdrawals result in your account being closed, your provider can allow you to reopen your flexible ISA in the same tax year and replace the money. That applies to old and new ISA accounts.

Again, check with your provider. (Via a billboard installed outside their office if need be.)

Flexible ISA hack to build your tax-free ISA allowance

  1. Open a flexible, easy access cash ISA that accepts ISA transfers.
  2. Transfer your non-flexible old ISAs into the flexible ISA.
  3. Your flexible ISA now accommodates the value of the old ISAs – say £40,000.
  4. If your flexible ISA doesn’t pay table-topping interest then withdraw your cash and spread it liberally among the humdinger savings accounts of your choice, or an offset mortgage.
  5. Move your cash back into the flexible ISA by 5 April of the current tax year. Fill as much of the current year’s ISA allowance as you can, too. For instance another £20,000.
  6. In our example, you now have £40,000 + £20,000 = £60,000 tax-free and flexible.
  7. From April 6 of the new tax year: withdraw your cash and liberally spread it.
  8. Repeat as required.

This method builds up a large and flexible tax-free shelter. One that could prove valuable later in life, when you have more money to tuck away.

For example, perhaps it could become a place to shelter and grow your 25% tax-free pension cash when you take it. This could be instantly transferred into a stocks and shares ISA, come the day.

Or maybe you’ll sell a business, or receive some other windfall.

Watch out for the £85,000 FSCS compensation limit (see below). Open a new flexible ISA with a different authorised firm before you go over that line.

What happens if you exceed the ISA allowance?

HMRC should get in touch if you exceed the ISA allowance. You may be let off for a first offence, but otherwise it will instruct your ISA provider on what action to take.

Action is likely to include your extraordinary rendition to an offshore black site where you will be forced to read HMRC compliance manuals for the rest of your life.

Alternatively, HMRC may require overpayments and excess income to be removed from your account. And also invite you to pay income tax and capital gains (potentially on all assets in the ISA) from the date of the invalid subscription until the problem is fixed.

Eek!

Your ISA provider may also charge you a fee for the hassle.

You can similarly get into hot water for dropping new money into your ISA as a UK non-resident or for breaking the age restrictions.

You can call HMRC on 0300 200 3300 to discuss all this.

Just don’t expect them to admit to the Deep State stuff. Open your eyes sheeple! [Editor’s note: we’re joking.]

FSCS compensation scheme

What if your ISA provider goes bust and your money can’t be recovered? In that case the Financial Services Compensation Scheme (FSCS) waits in the wings.

  • Innovative Finance – Not covered by the FSCS. You’re on your own.

Watch out for the definition of an ‘authorised firm’. Often multiple brand names sit under the same authorised firm umbrella.

For example, if you have cash at HSBC and First Direct then you’re only covered for £85,000 across both. They are one and the same authorised firm.

Investments parked at the same bank should be covered for another £85,000. That’s on top of your cash.

  • Check the FCA’s Financial Services Register to see what services your provider is authorised for.  
  • Firms with matching FRN numbers (also known as registration numbers) are sister brands that only provide you with £85,000 of compensation cover between them

Inheriting an ISA

The tax-free benefits of an ISA can be passed on to a surviving spouse or civil partner. 

(We’ll refer to a ‘spouse’ in the rest of this section but the ISA inheritance rules apply equally to a civil partner. Unfortunately they do not apply to unmarried partners). 

Upon death, all types of ISA (except a JISA) transform into a ‘continuing account of a deceased investor’. 

This so-called ‘continuing ISA’ can then grow tax-free until the deceased’s affairs are settled. 

The tax benefits of the deceased ISAs transfer to their spouse using an Additional Permitted Subscription (APS). 

The APS is a one-time ISA allowance that enables the surviving spouse to expand their ISA holdings up to the value of the deceased’s ISA accounts. 

By this mechanism, the tax-free status of the deceased’s ISAs are passed on to their spouse. 

Unfortunately, the rules descend into a bureaucratic quagmire from there. 

ISA inheritance rules for the Additional Permitted Subscription

A surviving spouse qualifies for the APS even if the ISAs are actually willed to someone else. 

However, a spouse does not qualify if the couple are not living together at the time of death, or the marriage has broken down, they are legally separated, or in the process of being legally separated. 

The value of the APS is the higher of:

  • The ISA’s worth at the date of death
  • Its value when the continuing ISA account is finally closed (assuming part of the APS hasn’t already been used)

The APS must be claimed separately from each of the deceased’s ISA providers. 

You can choose which of the two valuation options above apply to each ISA provider. You don’t have to pick one option that applies across the board with every provider

The APS can be used from the date of death. 

Although you’d normally expect an APS to be funded by the inherited ISA assets, this is not necessary. An APS can be fulfilled by any assets the spouse owns. 

The APS must be used within:

  • Three years from the date of death
  • 180 days after the completion of the administration of the estate, if that’s later. 

The APS does not interfere with the spouse’s own ISA allowance. They get that as normal. 

APS subscriptions count as previous tax year subscriptions.

You should check the terms and conditions of all your ISAs to ensure they adhere to APS provisions. ISA providers aren’t automatically obliged to comply with the APS rules. 

APS rules per ISA provider

One common restriction is that the spouse must use their APS with the same provider that runs the deceased’s ISA account. This leads to extra complications, as we’ll cover below. 

As mentioned, the APS is divided into separate amounts that align to the value of the deceased’s continuing ISA accounts – as held with each of their providers.

For example:

  • A continuing ISA worth £100,000 is held with provider A
  • A continuing ISA worth £50,000 is held with provider B

The surviving spouse can now fund up to £100,000 of APS in ISAs with provider A, and up to £50,000 with provider B. 

You can’t fill ISAs worth £75,000 with both providers. You can only ‘spend’ up to the limit of each APS per provider. 

However, you can split each APS between any number and type of ISA per provider. (Although there are restrictions on the Lifetime ISA.)

You can fill both new and existing ISAs with each provider. 

Transferring inherited ISA assets

In specie transfers from a continuing stocks and shares ISA must be made within 180 days of the assets passing into the beneficial ownership of the surviving spouse.

The in specie transfer can only be made to a stocks and shares ISA held by the spouse with the continuing ISA’s provider. 

The assets must be the same as those held on the date of death. 

Alternatively you can sell the investments for cash. The money can then be used to fund the APS with slightly fewer restrictions. 

You can always transfer your ISAs to another provider as normal – after you’ve used your APS. 

Lifetime ISA APS restrictions 

You can’t open a new Lifetime ISA unless you’re aged between 18 to 40. 

You can’t pay into an existing Lifetime ISA unless you’re under 50. 

The APS does use up your £4,000 annual Lifetime ISA allowance. 

You can’t pay APS into a Lifetime ISA if you’ve already paid into one in the current tax year. 

A continuing ISA’s tax-free growth limits

Before the deceased assets are transferred via the mechanism we’ve just described, they grow tax-free in continuing ISAs until:

  • Completion of the administration of the estate
  • The accounts closure by the deceased’s executor
  • Three years and one day after the date of death. Then the account can be closed by the ISA provider 

The earliest of these dates applies. 

The value of the deceased’s ISA holdings count towards their estate. The tax-free benefits are only passed to a surviving spouse. 

Inheritance ISAs are a marketing label not an additional type of ISA. Every ISA can be inherited as described above. But please check your provider’s T&Cs for additional restrictions. 

What happens to my ISA if I move abroad?

You can still put new money into your ISA for the remainder of the tax year when you stop being a UK resident. But you can’t contribute new money again until your residential status changes back.

Your ISA assets will continue to grow free of UK tax. But watch out! Your new country of residence may demand a slice.

In addition:

  • You should still be able to transfer ISAs without losing your tax exemption.
  • Ditto for withdrawing money from a flexible ISA and replacing it.
  • You can still inherit an ISA using the APS even if you’re resident abroad.

Check with your provider before doing anything, just to be safe.

You should also tell your ISA provider when you’re no longer a UK resident. The UK means England, Wales, Scotland, and Northern Ireland. The Channel Islands and the Isle of Man are excluded.

If you split your time between the UK and other territories you can do a residency test. This will determine your status. Fun!

You don’t lose your ISA annual allowance if you’re a Crown employee serving overseas, or their spouse or civil partner.

A few final ISA wrinkles

  • Each ISA can be held with the same or a different provider.
  • Payment into a JISA uses up the child’s allowance, not yours.
  • You can now hold fractional shares in a stocks and shares ISAs. They are ‘fractional interests’ in this list of qualifying investments.
  • Some providers have all-in-one cash ISAs. With these you can split new money between instant access and fixed-rate options, within a single ISA wrapper. 
  • A workplace ISA counts as a stocks and shares ISA.
  • You can only claim the government bonus when buying your first home from a Help to Buy ISA or a Lifetime ISA. Not both.

Any questions?

Well, we’re sure this brief post has cleared everything up… But do let us know in the comments if we’ve missed a bit.

You can also check out the government’s official ISA pages if you’re a completist!

Take it steady,

The Accumulator

Note: This article on the ISA allowance was updated in February 2025. Reader comments below may refer to older ISA rules. Check the date to be sure.

  1. Also known to the government but to nobody else as the ‘subscription limit’. []
  2. Exceptions: funds in a Junior ISA before the child reaches age 18, Lifetime ISA, Innovative Finance ISA loan lock-ins, and fixed-term/regular saver Cash ISAs where you’ll pay various penalties for early release. []
  3. Max per year, per person. []
  4. per child []
  5. The max contribution into a LISA is £4,000 a year. []
  6. That is to say you’re no longer filling it with new money. []
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