See why 4thWay now accepts ethical ads.

We Answer IFISA And Other Tax Questions From 4thWay Readers

By Neil Faulkner, 4thWay Head of Research on 9th June, 2025 | Read more by this author

Update: the first answer was corrected on 10th June after a stupid error by me. My apologies. On the positive side, on the 11th June HMRC explicitly confirmed to 4thWay that our second answer is correct.

We have two questions on flexible ISAs and one on the taxability of fees for selling your loan parts.

“If, in a new tax year, I first withdraw from a flexible ISA (e.g. £5,000) may I then, later in that same tax year, put more than the £20,000 ISA limit (e.g. £25,000) into that same flexible ISA?”

Flexible ISA rules are about allowing you to withdraw any money that is in your ISA, provided you put that withdrawn money back in during the same tax year – from 6th April to the following 5th April. When you do, you don't lose your ISA benefits and you're still able to use your full year's ISA allowance.

It's irrelevant when you first paid that money into the ISA, how long ago it was, or whether some of the money is proceeds of income or gains within the ISA. So, if you put the money in last tax year, you can withdraw some or all of it and then put it back in, provided you conduct that entire procedure during the current tax year.

If you withdraw £5,000 first, you can therefore put £25,000 in during the year.

If you have contributed new funds during the same tax year to other IFISAs, cash ISAs, share ISAs or lifetime ISAs, then the £20,000 limit is proportionately reduced, as it's shared between all those types of ISAs.

“If I lend, say, £15,000 in a non-flexible IFISA, transfer the whole of that to a flexible IFISA, withdraw all that investment from the flexible IFISA, and finally put it all back into the same flexible ISA, and all of this happens in the same tax year, does that all happen within the flexible ISA rules or would that breach those rules?”

Give me two paragraphs first to just explain briefly what flexible ISAs are before getting to the actual question.

Flexible ISA rules are about whether you can contribute new money, take it out and put it back in again within the same tax year, without that double counting towards your £20,000 annual limit. You can only do this if your provider tells you the ISA is a flexible ISA.

So, if you put in £15,000 and then quickly withdraw it, you'll be allowed to put up to £20,000 back into the ISA if it's a flexible ISA. But you'll only be able to put £5,000 into that and all your other cash ISAs, IFISAs share ISAs and lifetime ISAs combined this tax year if it wasn't a flexible ISA.

In this specific case postulated by the reader, it would appear that you can indeed withdraw these funds and put them back into the same flexible ISA.

Update on 11th June 2025: In this specific case postulated by the reader, HMRC has now specifically confirmed the above to 4thWay, with a representative telling me: “Officials have confirmed to me that [4thWay's] initial understanding would be the correct one. It would be in the flexible [ISA] so [flexibility] would apply.”

That is backed up by a lot of HMRC guidance, which doesn't cover that particular scenario but still consistently treats new contributions as new contributions for the rest of the tax year, even if those contributions have been transferred to another ISA.

For example, you can't contribute new funds, transfer those funds, then count them as transfers instead of new contributions, allowing you to put in another £20,000 right away. Sadly, that's not allowed!

Since new contributions can be withdrawn from a flexible ISA, and there's no guidance from HMRC suggesting a special rule in this case from the reader, it would appear that you can indeed withdraw these funds and put them back into the same flexible ISA.

However, IFISA providers sometimes misunderstand ISA rules, and they don't always update their own internal policies and practices swiftly when the ISA rules change, or they interpret the ISA rules differently to each other. Any flexible IFISA provider might potentially therefore reject your request to put funds back in. Most likely they wouldn't even know what you had done, but I would suggest you might still ask them what they would do before beginning this operation.

It's a little odd that you still have to put withdrawn cash back into the same flexible ISA for it to count towards the same year's ISA limit, considering that as of April 2024 you're allowed to put new contributions into as many ISAs as you want, subject to the overall contribution limit. But HMRC has confirmed to 4thWay that this rule remains in place.

“Are P2P loan sale fees offsettable for tax purposes?”

In IFISAs, you pay no taxes so this is only relevant when lending in ordinary P2P lending accounts.

Some peer-to-peer lending companies charge you fees to sell individual loans – or, equivalently, an early-exit fee to sell out of an entire portfolio of loans.

This question from a reader on the taxability of those fees is timely, since a colleague of mine was writing about taxes on lender fees today in Which P2P Lending Companies’ Lending Fees Are Not Tax Deductible?

I asked HMRC if special rules on sale fees apply when individuals lend through P2P lending accounts. The response was cagey: “There's no special rule for person to person interest so usual reliefs apply and usual rules would apply.”

HMRC guidance doesn't name call P2P lending in conjunction with loan sales fees, but its guidance consistently neglects to specify that individuals can offset costs and expenses related to earning interest when lending privately, or offset costs and expenses on savings income more generally.

That is all consistent throughout HMRC guidance on P2P lending, deduction of taxes from savings and investments, interest earned from savings and investments, and on savings and investment income more broadly.

As 4thWay has mentioned quite a few times and outlined in our comprehensive tax guide, lender fees that are charged directly to lenders for running their accounts are not tax deductible either. That was specifically confirmed by HMRC a few years ago. This is consistent.

Another consistent fact is that as an individual lender you can't set off negative interest against positive interest.

For tax purposes, HMRC in most ways treats P2P lending conducted by individuals rather more like saving rather than investing. When saving, you can't offset any direct banking costs charged to you against the savings interest you've earned either. P2P lending is also covered by the Personal Savings Allowance, which is shared with savings interest in your bank accounts and savings accounts.

All this adds up to it being unlikely that you can use loan-sale fees to offset taxes on interest you've earned through P2P lending.

The impact of taxes on loan-sale fees is at least partly offset – and for many individual lenders more than offset – by the tax savings you get from your peer-to-peer lending being included in the personal savings allowance.

Pages linked to above

Which P2P Lending Companies’ Lending Fees Are Not Tax Deductible?

How Does Peer-to-Peer Lending Tax Work?

We Answer IFISA And Other Tax Questions From 4thWay Readers

“If, in a new tax year, I first withdraw from a flexible ISA (e.g. £5,000) may I then, later in that same tax year, put more than the £20,000 ISA limit (e.g. £25,000) into that same flexible ISA?”

“Are P2P loan sale fees offsettable for tax purposes?”

Further reading

Pages linked to above

More links

Your search