Closure (other than transfers to another ISA) will result in loss of tax free statu

Tinkly_Rain

Can someone please explain what this means.

Closure (other than transfers to another ISA) will result in loss of tax free status.

At the end of the bonus period of the Post Office ISA I have just taken out I will want to close the account as I may want to spend the money. Does this mean I will then have to pay tax on the interest earned?

jimjames

Yes, you pay tax on the interest once it is outside the ISA.

Keep the money inside the ISA until you are ready to spend it, then withdraw it and you will only be paying tax for the minimum possible time.

Gromitt

Just to clear something up: You will not pay tax on any of the interest earned whilst its in the ISA, only when you withdraw it. So if you earn £200 interest for the next 12 months it remains in the ISA, you get that gross.

atush

No, you wont pay tax on the money after it is taken out. Only on new interest earned should it get any before you spend it. If you remove and spend it, it wont have time to earn any interest.

Any money removed from an ISA for any reason whatever loses tax free status on any Future interest (as opposed to Past interest).

It only keeps tax free status if you transfer it to anotehr ISA that accepts transfers.

Tinkly_Rain

Thank you very much, all, for your valued advice. I am a bit thick so may I ask another question as I can't quite see my way round it - as I understand it I can make a withdrawal with no tax implication as long as I keep the ISA open. Is that right? My interest is paid annually in March should I wait until the interest is paid in, make a substantial withdrawal and then close the account shortly afterwards and thus will only have to be taxed on the interest earned from March on a small amount of money. Does this make sense? I hope so - and thank you all again

Lokolo

Tinkly_Rain wrote: »

Thank you very much, all, for your valued advice. I am a bit thick so may I ask another question as I can't quite see my way round it - as I understand it I can make a withdrawal with no tax implication as long as I keep the ISA open. Is that right? My interest is paid annually in March should I wait until the interest is paid in, make a substantial withdrawal and then close the account shortly afterwards and thus will only have to be taxed on the interest earned from March on a small amount of money. Does this make sense? I hope so - and thank you all again

You can make a withdrawal whenever you like. Its what you do with the money next that matters.

If you have £10,000 in ISA, you earn £500 interest. No tax.

You then take £5,000 out of the ISA and put it in a non-ISA savings account. You earn £200 interest from this. There is tax to pay on this interest.

Banks usually deduct 20% interest at source anyway and if you are a higher rate tax payer than you will have more to pay.

grey_gym_sock

if you acutally close the ISA account now, you will get the interest paid on closure, i.e. sooner than if you keep the account open. the interest on closure is tax-free.

there is a potential problem with closing the account only if its interest rate include some sort of bonus which will only be paid if it stays open till march. most accounts aren't like that, however - even some accounts with bonuses will pay the bonus on closure.