'Offset' ISAs? are they alllowed?

RainbowsInTheSpray

Er... GB seems to get a lot of flak but wasn't it he who brought in ISAs in the first place to encourage just this sort of savings culture?

masonic

RainbowsInTheSpray wrote:

Er... GB seems to get a lot of flak but wasn't it he who brought in ISAs in the first place to encourage just this sort of savings culture?

There were, of course, TESSAs before ISAs.

roswell

Barclays also allow isa`s to be offset through woolich mortgages.

Bernie

RainbowsInTheSpray wrote:

Er... GB seems to get a lot of flak but wasn't it he who brought in ISAs in the first place to encourage just this sort of savings culture?

...perhaps I've failed to make our position clear - we're simply trying to avoid paying more tax on saved earnings that have already been taxed! We're doing this by moving money each year from a joint offset deposit account into two individual offset ISA until such time as we can redeem the mortgage and recover our engorged ISAs.

Effectively, we've paid £400 (mortgage fee) for an interest-free loan of £125K to be paid back over the next 10 years. This "loan" will enable us, by the end of the term, to transfer large dollops of our savings into our ISA's which we have not had to redeem... and we're doing all this with money we've already effectively "spent" on a house!

All-in-all, we are pretty pleased with the way it is now panning out...

:beer:

Milarky

Just had a thought about this. Does that mean that your ISA balances don't then benefit from compound interest? (i.e you can add £3000 per person to the offset amount but that's all?) Over 10 years (at say 5%pa ) an ISA balance will grow to 12.57 times the annual subscription - to £75,467 compared to £60,000 - for two people. This isn't necessarily a problem as not everyone can afford to save near the maximum into an ISA, but for those that do you would seem to be paying for the privilege slightly.

(Hmm!)

roswell

The general rule is when you get to 100% offset you start moving money out the offset well thats what im going to do.

Paul_Herring

Bernie wrote:

...perhaps I've failed to make our position clear - we're simply trying to avoid paying more tax on saved earnings that have already been taxed!

Slight misconception there - you don't get taxed on any earnings that are already taxed - you (usually) get taxed on any interest it generates.

Milarky wrote:

Does that mean that your ISA balances don't then benefit from compound interest?

No, but he's benifiting by not getting compound interest on some of his mortgage - which is more than he'd be getting from a normal ISA.

MarkyMarkD

Milarky's point is interesting. It means that the lender isn't running things in the most tax-efficient way for the customer (Bernie).

What would be most tax-efficient is for interest to be credited on the ISA in the normal way (tax free) but for a negative interest charge to be applied to the mortgage account for exactly the same amount.

But doing it this way would demonstrate even more obviously that allowing offset mortgages is a tax fiddle.

Bernie

...the main benefit we sought was to retain the tax-free status of our existing ISAs/TOISA. Secondary was that we were not cleaned out cash-wise and still have immediate access to "our" cash (even though we've really "spent" our cash on a house).

We've spotted something else too - the small overall credit we have in our offset accounts has generated some interest in the TOISA rather than in the deposit account as we expected. If the interest rate is high enough, it may be more beneficial to us to build up cash in IF rather than with ICICI. Now waiting for IF to reply...

:beer:

MarkyMarkD

Ah right. So they are offsetting the tax-free accounts last, which makes sense for you.