Tax on Cash Isa Interest

holley36

I thought that interest on a cash ISA is tax-free. Have I got this completely wrong? I Have an ISA of £5340 from last year with 3.3% interest (£176.22)but the bank have paid me (Interest paid after tax 0.00 deducted £136.07) a total repayment of £5476.07.
Before I contact them, I would like some clarification of the tax situation.
Thanks in advance.

rosy

Interest on a cash ISA is tax free. Sorry if you have already considered these but just thinking of the possible causes of receiving less interest than you expected -
Was the rate fixed at 3.3% for the whole year?
Did you have the entire £5340 in for a whole calendar year before the interest was added to the account?
I'm not sure if you still have the ISA as you talk about a repayment - if you have closed it was there a penalty for early closure (if it was a fixed term product?)

ejv

Has this ISA run for 12 months? ie did u deposit whole £5340 exactly on 6/4/2011 and your statement is dated 5/4/2012?
Is that 3.3% of Santander?If so, they calculate interest on 1st March

bigfreddiel

holley36 wrote: »

I thought that interest on a cash ISA is tax-free. Have I got this completely wrong? I Have an ISA of £5340 from last year with 3.3% interest (£176.22)but the bank have paid me (Interest paid after tax 0.00 deducted £136.07) a total repayment of £5476.07.
Before I contact them, I would like some clarification of the tax situation.
Thanks in advance.

was the period exactly one year over which your £5340 was in the isa?


thats amazing - three of us asked the same question at exactly 8:21pm!

fj

Stompa

Assuming you had the full £5340 in for a whole year you should have received £176.22 (at 3.3%). So no tax.

holley36

Thanks guys for your various comments.

Rosy, I am pretty sure that the rate was fixed at 3.3% for the whole year, as I have just received a letter (yes ejv, you got it right, it is Santander), saying that the rate will revert to 2.5% on 16/05/2012. I wasn’t as clever as I thought I was last year, as I only transferred £5340 on 20/05/11, & Santander processed it on 24/05/11, so it won’t even have been in 12 months, when I transfer out the whole ISA before 16/05. Can’t understand why I didn’t do the transfer on 6 April.

Sorry to confuse things talking about “a repayment”, It’s still all there in Santanders hands, so no penalties.

Yes ejv, Santanders interest change letter is dated 30March.

Thanks for your input bigfreddiel & Stompa. Presumably I will have a bit more interest to come from them when I transfer it into another ISA ,not with Santander, as there are other issues which have displeased me.

Once again, thanks guys for putting me straight. Any more tips will be gratefully received.

DreamerV

That makes sense. You ISA funding was processed May 24th, and interest calculated until March 1st

About 283/366 days * 176.22 = £136.26

It's a little bit out but only a tiny bit. You will get the remainder of the interest (from 1st March onwards until you transfer out or until next March 1st, whichever happens sooner).