Our Financial Planning Manager Sandra Scott looks at how the flexible Aviva ISA can help your clients avoid a capital gains tax liability.
When flexible pensions were introduced in 2015, much was written about the planning options the new rules provided. Yet far was less said about flexible ISAs when they arrived just a year later – despite them offering your clients some serious benefits.
Let’s take a closer look.
In a nutshell, flexible ISAs enable your clients to take money out of their ISA and then replace it in the same tax year without it affecting their allowance.
Before 6 April 2016, if your client needed to access money from their ISA they couldn’t replace it later unless they had some of their annual allowance left. But since then, ISA investors have been able to replace any money they had withdrawn from their ISA earlier in a tax year.
The downside is that not all stocks and shares ISAs offer this flexibility.
But the Aviva ISA does.
How you can use a flexible ISA to help your clients
Let’s say Mrs Smith has an investment account, which she’s been using for some time to fund her Aviva ISA each year. She has built up a fund of £230,000 in this ISA, and the investment account feeding it has a current balance of £90,000.
Mrs Smith pays into her ISA on 6 April 2018, taking her ISA balance up to £250,000 and her investment account down to £70,000.
But then Mrs Smith’s son asks if he can borrow £50,000 – a short-term loan, for no more than six months. Mrs Smith is happy to do this and asks her adviser to arrange for a withdrawal of £50,000 from her investments.
The issue Mrs Smith has is that if she takes the money from her investment account there will be a part disposal for capital gains tax.
Her investment has been in place for a number of years now with a substantial capital gain building up. This gain is gradually being washed out with the regular transfers to her Aviva ISA, but withdrawing £20,000 from it to fund into her ISA used up £8,000 of her capital gains tax allowance for the year (£11,700 in 2018/19). A further withdrawal of £50,000 in the same tax year would result in a capital gains tax liability of around £1,600.
Mrs Smith’s adviser therefore recommends that she takes the £50,000 from her flexible Aviva ISA, which will not result in any capital gains tax. The £50,000 can then be repaid into the ISA at any time up to 5 April 2019 without affecting her normal subscription.
Your client's flexible friend
As a flexible stocks and shares ISA, our ISA Portfolio is great for giving your clients peace of mind. If a situation crops up where they need a lump sum of money, they can get hold of it without incurring unnecessary capital gains tax charges in an investment account (or potentially, if they're 55+, irreversibly losing the tax benefits of being invested in a pension wrapper).
For more information about the ISA Portfolio, please speak to your usual Aviva consultant or visit our Aviva Platform pages