ISA Confusions

steveh2001

Hi guys - hope someone could help

I have a few ISA related questions:

1) I would like to get an ISA in the next few weeks - Obvioulsy there is 3 months until April the 5th - does this mean that if I open an ISA i will only get 3 months tax free interest on this particular ISA? Or does it mean that I would hold this ISA for a year from the opening date, e.g. Jan 28th 2007 to Jan 28th 2008? (I guess this would be classed as an 2006/7 ISA). And straight after the 5th, I can open another ISA which would be my 2007/8 ISA? I would then have two ISAS running on the 6th (assuming i opened the 2nd on the 6th). But this would be OK as they are seperate years ISA allowance? Hope that all makes sense!

2) What happens when you have two ISAS either side of the 5th of April? (assuming what i said above is correct) Can i have the two ISAS in different banks? If i have them in the same bank, do I have two different accounts, or one "merged" account?

2) What happens to the ISA after one year? Do you have to move it back to another account? Does it stay in there for a new year where I can add another £3K?

Thanks for any advise!

masonic

1) I think your questions can all be answered with the simple statement "ISAs do not mature".

2) See (1) above. Yes. Either is possible.

3) See (1) above. No. Yes.

Bear_family

Hi,

I'll try and help you as best I can.

1, The money held in an ISA is ALWAYS tax free and if you open one before april 5th 2007 with £3,000, it will be classed as your allowance for the year 2006. Any time after April 6,2007 to April 5, 2008 will be classed as your allowance 2007 allowance. Whether interest is paid on April 5th or the date you take it out depends on who you take out the ISA with.

2, Yes, each yearly ISA can be opned with a different bank, building society etc.

3, You can keep your money in the ISA account for as long as you like, it will earn interest every year. This is why some people keep adding their £3,000 yearly allowance to the same ISA account as you will obviously have more money in the same account to earn interest on.

Hope this helps.

BF

steveh2001

Hi guys - thanks again for your reply's. I think i understand about when you can have the ISAS now - but still a bit confused about what happens at the end. Regarding this point:

3, You can keep your money in the ISA account for as long as you like, it will earn interest every year. This is why some people keep adding their £3,000 yearly allowance to the same ISA account as you will obviously have more money in the same account to earn interest on.

You say that you will have more money to earn interest - so in year two - would you have £6000 in there? And would this be earning tax free interest? Surley this is going against the one isa per tax year rule?

So if I setup an ISA with NS&I - what happens at the end? Does it automaticaly go into another ISA? Or does it convert into some holding account, where I can either remove it or renew the ISA?

Also - if i open an ISA today - i assume i get 1 years tax free interest from today? Or is it up to the end of the next tax year?

Thanks again and sorry for the confusion!

jem16

steveh2001 wrote:

Hi guys - thanks again for your reply's. I think i understand about when you can have the ISAS now - but still a bit confused about what happens at the end. Regarding this point:

3, You can keep your money in the ISA account for as long as you like, it will earn interest every year. This is why some people keep adding their £3,000 yearly allowance to the same ISA account as you will obviously have more money in the same account to earn interest on.

You say that you will have more money to earn interest - so in year two - would you have £6000 in there? And would this be earning tax free interest? Surley this is going against the one isa per tax year rule?

Yes you would have £6k in there if you put in £3k each year. Perhaps better to think about it as a £3k per tax year allowance. You can put your £3k each year into a different ISA provider or just keep it with the same one every year. Currently I have about £26k in mine.

So if I setup an ISA with NS&I - what happens at the end? Does it automaticaly go into another ISA? Or does it convert into some holding account, where I can either remove it or renew the ISA?

Nothing happens at the end. It stays as it is earning tax-free interest. You can then add another £3k if you wish or you can put £3k into a different provider.

Also - if i open an ISA today - i assume i get 1 years tax free interest from today? Or is it up to the end of the next tax year?

You will get tax-free interest based on the length of time you have. So if you open it today you will get tax-free interest from today up to 5th April when it will then be credited to your account

steveh2001

I think ive just understood why im getting confused - i thought the definition of an ISA was:

"An account where you can only hold £3K in per year where interest is tax free. So after one year it would finish and you can get another one, but only having £3K in each year."

But i think after reading your explination this would be incorrect as then how can you have £26K in one. So is the correct definition:

"An account where interest is tax free - you can add in £3K per tax year and accumulate as much as you want"?

Ive just opened the NS&I one - so whereas i previously thought this would run from feb the 4th 2007 to feb 4th 2008 and my next one would run from April the 6th 2007 to April the 6th 2008 - The correct way of thinking would be that I can gain interest on £3K till march where my total allowance will jump up to £6K max where I can now earn interest on the two tax years worth of allowances?

Hope ive understood it now!
Cheers

jem16

steveh2001 wrote:

I think ive just understood why im getting confused - i thought the definition of an ISA was:

"An account where you can only hold £3K in per year where interest is tax free. So after one year it would finish and you can get another one, but only having £3K in each year."

But i think after reading your explination this would be incorrect as then how can you have £26K in one. So is the correct definition:

"An account where interest is tax free - you can add in £3K per tax year and accumulate as much as you want"?

That sounds better.

Ive just opened the NS&I one - so whereas i previously thought this would run from feb the 4th 2007 to feb 4th 2008 and my next one would run from April the 6th 2007 to April the 6th 2008 - The correct way of thinking would be that I can gain interest on £3K till march where my total allowance will jump up to £6K max where I can now earn interest on the two tax years worth of allowances?

You've got it.

You can learn about transferring an ISA later if the NS&I ISA ever becomes a poor payer.

steveh2001

Excellent! I just also realised why i was confused - I was thinking of an ISA like a savers bond, not an actual account!

Its all suddenly become clear! Thank you all so much for helping it to become clear

Ive had a brief read through Martins guide on transfers, but will leave that until the rate becomes an issue.

Thanks again

kincade

I had the same confusion about what happens after the tax year finishes,can the money stay there if you are going to keep putting money in next year,up to the £3000 limit. now cleared up thanks.

my other confusion is when looking at the money pages in the press.the best buys list for mini ISA's.do they give a guraneed rate .ie saturdays independent has a mini ISA from saffron bs at 6.05% is this guraneed,can it go up or down ?

RayWolfe

kincade wrote:

my other confusion is when looking at the money pages in the press.the best buys list for mini ISA's.do they give a guraneed rate .ie saturdays independent has a mini ISA from saffron bs at 6.05% is this guraneed,can it go up or down ?

Look for the little asterisk*
*introductory variable rate
So not only can it go up or down, it will definitely go down!

kincade

RayWolfe wrote:

Look for the little asterisk*
*introductory variable rate
So not only can it go up or down, it will definitely go down!

aye I see what you mean.out of 6,4 are asterisked,what about the other two..NS&I (5.80%) and kent reliance (5.71%)
?