Taxation on income from S&S ISA?

RebTech

I'm thinking of taking an income from my S&S ISA, but I'm confused about the tax situation.

I know that, generally speaking, both dividends and interest from bond funds are taxed at source, but tax on interest can be refunded while dividend tax cannot. But what difference, if any, is made by the fact that these investments are held in the ISA wrapper? Is the interest tax refund automatic or what? And is it just daft (as it appears to me) to hold income-type but dividend-paying funds in an ISA?

le_loup

Your tax refund on interest will be organised by either the fund manager or your IFA. You need do nothing.
Sometimes the tax gets repaid a couple of months after the interest payment and sometimes it's paid at the same time.

sorcerer

I remeber when I held bonds outside of an ISA, the fund manager took the money about before I was paid. I am guessing they don't do anything is if sitting in an ISA, they just give you the full amount. And at the end of the tax year i got a certificate showing how much tax was paid.

xylophone

Dividends are paid with a "tax credit" of 10%- this is the tax paid by the issuing company and you receive your dividend net of this amount, whether inside or outside an ISA - however, if you are a higher rate tax payer or additional rate tax payer, if you hold shares outside an ISA you have additional tax to pay and this is collected through your self assessment tax return. There is no further tax to pay on shares inside an ISA but the dividend tax credit is not reclaimable inside the ISA.

If you hold investments that pay interest outside an ISA, the interest is taxable at your highest marginal rate.

If you hold investments that pay interest inside an ISA, if the income is paid net, the tax is reclaimable and this will be reclaimed by the ISA manager.

IronWolf

The "tax credit" on dividends isnt an actual tax paid by the company. Its just a credit to say the company has already paid tax on its earnings. You can't cash it in if your in an ISA, but it reduces the tax you have to pay if you need to outside an ISA.