I’ve taken £40,000 out of ISAs for a house deposit – but my purchase has fallen through

In our weekly series, readers can email any questions about their finances to be answered by our expert, Rosie Hooper. Rosie is a chartered financial planner at Quilter Cheviot and has worked in financial services for 25 years. If you have a question for her, email us at money@inews.co.uk. Question: I recently pulled £40,000 out of ISAs to buy my first home with a 15 per cent deposit. Unfortunately, the sale fell through, and I’m now stuck with this money out of the ISA. Is there anyway I can put it back in? Or failing that, what’s the best solution? I’m now paying tax on the money which isn’t ideal and I might not buy again for another six months to a year. Answer: Having a house purchase fall through at the last minute is disappointing at the best of times. When you’ve already taken £40,000 out of your ISA for the deposit, it can feel like adding financial insult to emotional injury. Shorts The first thing I’d do is check whether the ISA you withdrew the money from is a flexible ISA. Many people don’t realise these exist, but they can be incredibly useful in exactly this sort of situation. If your ISA has flexible status and you made the withdrawal during the current tax year, you can usually put the money back into the same ISA before 5 April without it affecting your annual ISA allowance. In effect, it gives you a second chance when plans don’t quite work out as expected. Not all ISAs offer this flexibility, however. If yours doesn’t, the money you’ve withdrawn has effectively lost its ISA protection and any interest it earns could become taxable, depending on your wider circumstances. The good news is that you can start rebuilding that tax shelter straight away. Assuming you haven’t already used your ISA allowance, you could pay up to £20,000 back into an ISA this tax year and then use next year’s allowance for the remainder. It’s also worth bearing in mind that today’s rules may not be around forever. From April 2027, the amount under-65s can put into Cash ISAs is expected to fall from £20,000 to £12,000 a year, which could make rebuilding a large cash ISA pot much slower than it is today. That’s another reason why checking whether your original ISA was flexible could prove particularly valuable. As for where to keep the money while you regroup, your timescale is important. If you’re hoping to buy again within the next six to 12 months, I’d be cautious about investing it. The stock market can be a wonderful place for long-term savings, but it’s not always kind over shorter periods and the last thing you need is to find your deposit has shrunk just as the right property comes along. In your shoes, I’d be tempted to park the money in premium bonds while house hunting resumes. Your capital is secure, the money remains accessible, any prizes are tax-free and you can hold up to £50,000. No one should build a financial plan around winning the jackpot, of course, but there’s something quite nice about knowing your deposit money has a chance, however remote, of giving you a helping hand towards your future home. If your plans change and buying is pushed back several years, that’s a different conversation and a stocks and shares ISA may become worth considering. But for a potential purchase in the coming months, keeping the money safe and readily available should probably be the priority. For now, don’t lose heart. A failed purchase doesn’t mean you’ve undone all the good financial decisions that got you this far. Your next step is simply to find out whether your ISA is flexible. If it is, there may be a straightforward route to putting that £40,000 back where it belongs while you wait for the right property to come along. EXPLORE MORE ON THE TOPICS IN THIS STORY