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  • FIRST POST
    • MSE Eesha
    • By MSE Eesha 8th Feb 16, 6:38 PM
    • 91Posts
    • 21Thanks
    MSE Eesha
    Is it time to ditch cash ISAs now that all savings will be tax-free?
    • #1
    • 8th Feb 16, 6:38 PM
    Is it time to ditch cash ISAs now that all savings will be tax-free? 8th Feb 16 at 6:38 PM
    This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.





    Please click 'post reply' to discuss below.
Page 1
    • jonesMUFCforever
    • By jonesMUFCforever 8th Feb 16, 11:30 PM
    • 24,174 Posts
    • 11,447 Thanks
    jonesMUFCforever
    • #2
    • 8th Feb 16, 11:30 PM
    • #2
    • 8th Feb 16, 11:30 PM
    Not got my head round all the rules yet - as I understand it a basic rate taxpayer gets an allowance of 1000 per tax year so interest payments up to this amount will be tax free.
    As the rules stand now interest on ISA is tax free so IMO should not count towards the 1000 allowance.
    I can't find a definitive answer to confirm this or indeed to correct me if I am wrong.
    Anybody know for sure?
    What goes around - comes around
    give lots and you will always receive lots
  • jamesd
    • #3
    • 9th Feb 16, 12:56 AM
    • #3
    • 9th Feb 16, 12:56 AM
    Don't ditch the ISA. With the new Flexible ISAs due to arrive in April you can instead put the money into an ISA, withdraw say 90k of ISA money on 7 April and pay it all back into the ISA on 5 April. So you can get the non-ISA rate for short term money but still have the whole ISA pot available for when an ISA offers the better rates.
    • MSE Martin
    • By MSE Martin 9th Feb 16, 12:50 PM
    • 8,109 Posts
    • 42,244 Thanks
    MSE Martin
    • #4
    • 9th Feb 16, 12:50 PM
    • #4
    • 9th Feb 16, 12:50 PM
    Not got my head round all the rules yet - as I understand it a basic rate taxpayer gets an allowance of 1000 per tax year so interest payments up to this amount will be tax free.
    As the rules stand now interest on ISA is tax free so IMO should not count towards the 1000 allowance.
    I can't find a definitive answer to confirm this or indeed to correct me if I am wrong.
    Anybody know for sure?
    Originally posted by jonesMUFCforever
    It is in my blog - point one on ISAs - "ISA interest does not count towards the PSA"
    Martin Lewis, Money Saving Expert.
    Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.

    Don't miss out on urgent MoneySaving, get my weekly e-mail at www.moneysavingexpert.com/tips.

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  • jamesd
    • #5
    • 9th Feb 16, 12:55 PM
    • #5
    • 9th Feb 16, 12:55 PM
    With respect to it being possible to transfer money from past years and Flexible ISAs please see The Individual Savings Account (Amendment) Regulations 2016, specifically these portions that specifically provide for past year ISA money:

    "5DDB.−(1) The terms and conditions of an account (other than a junior ISA account)
    (“flexible account”) may provide for an account investor to be able to replace (in whole or
    part) a cash amount withdrawn by the account investor in any year by a replacement
    subscription of a cash amount (“replacement subscription”) made in that year.
    (2) Subject to regulation 4(1B)(a) and (b), a replacement subscription in respect of the
    current year’s subscriptions may be made into any account of the account investor.
    (3) A replacement subscription in respect of the previous years’ subscriptions may be
    made only to the account from which the withdrawal of a cash amount it is replacing was
    made.
    (4) Any withdrawal of a cash amount in any year is to be deemed to be made first out of
    the current year’s subscriptions.
    (5) Any replacement subscription is to be deemed to be a replacement first of any
    withdrawal of a cash amount made out of the previous years’ subscriptions.
    "

    Further information can be found both in those regulations and in ISA manager bulletin 68 and the draft guidance notes entries which it links to.
    Last edited by jamesd; 09-02-2016 at 3:00 PM. Reason: remove the words "the transfer of" from the first para, not main topic
  • jamesd
    • #6
    • 9th Feb 16, 12:58 PM
    • #6
    • 9th Feb 16, 12:58 PM
    Martin, thanks for replying here, while I was busy writing the references to support the description.

    I think that this one and the ability to have more than one account with a single ISA manager as in the HTB and regular cash ISA account both merit additional explicit clarification and examples in the guidance notes and Bulletin so I'll probably suggest that to HMRC.

    Would you be kind enough to confirm here that I am right, assuming I am, assuming that you go to HMRC or Treasury to obtain certainty that this is correct?
    Last edited by jamesd; 09-02-2016 at 1:11 PM. Reason: expand a little
    • MSE Martin
    • By MSE Martin 9th Feb 16, 1:19 PM
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    MSE Martin
    • #7
    • 9th Feb 16, 1:19 PM
    • #7
    • 9th Feb 16, 1:19 PM
    JamesD, thank you for sending me that very interesting - much appreciated, and I wasn't aware of that nuance.. We're going to speak to revenue to get clarification. Yet on that, reading it I think you're right in the narrow event that you have a continuing ISA in one place you can withdraw past as well as current years contributions.

    Im not sure this really affects the logic of the piece though. Even if you are in that position, you'd need to game it and withdraw money at the year start then replace the day before ISA year ends, then withdraw again next day. Useful for the v financially savvy, but not mainstream. I will add it as an addendum though once HMRC confirms

    PS I have deleted my original response so as not to add confusion while I await HMRC repluy
    Last edited by MSE Martin; 09-02-2016 at 1:21 PM.
    Martin Lewis, Money Saving Expert.
    Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.

    Don't miss out on urgent MoneySaving, get my weekly e-mail at www.moneysavingexpert.com/tips.

    Debt-Free Wannabee Official Nerd Club: (Honorary) Members number 000
  • jamesd
    • #8
    • 9th Feb 16, 2:51 PM
    • #8
    • 9th Feb 16, 2:51 PM
    You can also transfer but do have to redeposit to the same account, which can be reopened if it was closed. The rules for what happens to the allowance if you've withdrawn a partial subscription and transfer the rest can get a little fiddly, with only the unused allowance transferring and you unable to repay the part of the current year money that you withdrew from the original place until you transfer back.

    Say:

    1. Account at manager A with 100k of past year money, subscribe an additional 5k (and pretend the annual allowance if 15k).
    2. Withdraw 55k from A, 5k is automatically current year, 50k past year. 15k is automatically current year, 40k past year.
    3. Transfer 50k to account with manager B. I'll have to re-read the rules to be sure I get what happens to the current year allowance that remains... may edit later.

    But this way you can do things like moving between accounts and withdrawing from them to take advantage of the best interest rate deals.

    With the remove and replace rule you can do some interesting things with respect to interest saving/making, say involving credit card paying off then using 0% for purchases cards to replace the money in the ISA as you do your normal spending.

    I think that the first key logic aspect is whether you're even going to use the whole annual ISA allowance at all. Many people just won't have the money to even use it once, so there's really no disadvantage for them to just pick the highest rate.

    Of course what we don't know yet is which ISA providers will choose to offer the flexibility feature, since it is optional for them.
    Last edited by jamesd; 09-02-2016 at 10:43 PM. Reason: Correct error in current/past year spit
    • MSE Martin
    • By MSE Martin 9th Feb 16, 5:03 PM
    • 8,109 Posts
    • 42,244 Thanks
    MSE Martin
    • #9
    • 9th Feb 16, 5:03 PM
    • #9
    • 9th Feb 16, 5:03 PM
    JamesD. Yes you are right, just had confirmation. However HMRC said this is at the discretion of the ISA manager - they dont have to allow past year flexibility, so we may well see some just not wanting to (a bit like accepting transfers in).

    As your rightly say the rules are complex and we're still trying to confirm the partial withdrawl interaction with transfers rights. We're going to do more on this - thanks again.
    Martin Lewis, Money Saving Expert.
    Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.

    Don't miss out on urgent MoneySaving, get my weekly e-mail at www.moneysavingexpert.com/tips.

    Debt-Free Wannabee Official Nerd Club: (Honorary) Members number 000
  • jamesd
    Thanks Martin. I've corrected a mistake in my own post about the way current year subscriptions are handled.
    • dgp1000
    • By dgp1000 11th Feb 16, 8:22 AM
    • 42 Posts
    • 7 Thanks
    dgp1000
    If I've read this https://www.gov.uk/government/publications/personal-savings-allowance-factsheet/personal-savings-allowance right no tax is payable on savings interest until your taxable income is more than 17000. Given the annual personal tax allowance next year is 10800, doesn't this mean you will have to earn more than 27800 before any savings interest is taxed? So it will be possible to receive more than 1000 interest tax free Or am I wrong?
  • jamesd
    You're right provided that the amount of earned income is no higher than the personal allowance. There are three different pieces that get you there:

    1. The personal allowance.
    2. The starting 0% rate for savings interest. Each Pound of earned income over the personal allowance reduces the amount which qualifies for this by a Pound.
    3. The Personal Savings Allowance.

    There's an MSE article about this which also explains what happens to those who earn between the personal allowance and the top of the 0% starter savings interest rate. The article has some examples and more details.
    • Plus
    • By Plus 16th Feb 16, 1:23 PM
    • 239 Posts
    • 179 Thanks
    Plus
    Another reason in favour of cash ISAs is they're a 'gateway drug' to stocks and shares ISAs.

    The 'savings journey' of many people is that they sort out their debts, then accumulate some savings, and then learn about investment for their retirement.

    A pension is the obvious vehicle for retirement planning, but using a S&S ISA can provide much more flexibility. S&S ISAs are useful because they're free of capital gains tax, some tax on dividends, and much easier to administer (no tax record keeping required). They don't have a tax contribution from the Chancellor but they aren't taxed when they pay out, unlike pensions. (Tax treatment of pensions may change, of course)

    If the savings step on their journey is into cash ISAs, it's very easy to transfer them into S&S ISAs when you want to invest for the longer term (5/10 years or more). If you saved outside the tax wrapper, you can then only feed in 15Kpa into a S&S ISA and beyond that are forced to have unwrapped investments subject to tax (and the tedious record keeping that implies).

    If the annual 'withdrawal shuffle' as suggested by jamesd works out, it's still worthwhile filling your cash ISA allowance even if the money is only there over the end of the tax year. That way you retain the right to transfer your cash into a S&S ISA at a later date, while getting the best rates the rest of the year.
    • redux
    • By redux 16th Feb 16, 4:31 PM
    • 17,503 Posts
    • 22,353 Thanks
    redux
    I'm a bit uneasy about the wording of the title, and one or two assumptions included or implied.

    It's simplifying things and not quite accurate and to say all savings will be tax free. It might be better though more pedantic and boring to say most savings will be tax free, or better still most people will have all their savings tax free.

    Yes, Martin goes on to discuss this, e.g. for 95% etc, and the title was rhetorically like a sample question asked by someone else, but I wonder if changing the word to most rather than all would be an improvement, if we consider that some people may read it as much as a statement as a question, and the title can be more powerful than the qualifying nuances later.

    Maybe I'm just being too pedantic though.
  • jamesd
    Plus, my guess is that it'll mainly be offered for low interest rate accounts, not leading interest rate payers. Also seems unlikely to be competitive with the best term deposit deals but anyone doing that could usefully consider the far higher paying P2P, though with some investment risk on the P2P side, and clear indications now that at least some of the bigger P2P players will be able to accept Innovative Finance ISA money to pay out tax free.

    Reduc, you're right but it's worth considering Martin's audience profile and that it is likely to be very heavily dominated by people for whom the current headline is true. I expect that past surveys have shown the sort of level of savings that the audience has so he and the team will have a really good idea about targeting. Most won't even have enough to fully use one year's ISA allowance.

    Not remotely true for me with circa 10k of interest income mostly from P2P but I'm definitely an outlier.
    • smallbusiness
    • By smallbusiness 11th Mar 17, 2:28 PM
    • 12 Posts
    • 1 Thanks
    smallbusiness
    Is there any new ISA that has a decent interest rate on the market now?
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