Isa interest question.

Saverdan

Just a quick question regarding the interest earned on money invested in Isa's.
I put the full allowance of £5640 into a cash isa with Virgin last year, each month it earns between £12 & £13 interest which stays in the same account so after a year instead of having £5640 it is now grown to £5770.
As the money in the Isa account is now above the max £5640 allowed for 2012 will the interest earned be taxed or is it protected because it is in the Isa?

david78

There is no tax to pay.

I'm getting DeJa Vu answering the same questions over and over :rotfl:

Saverdan

Hi David,

Thanks for the quick reply, it was just when I opened this years Isa with Virgin it gave me the option to have the interest paid monthly again and also to transfer each months interest out of the account to a different bank account which got me thinking that maybe the old account was only allowed to have the maximum £5640 saved.

david78

There's no upper limit

Some people like the interest paid out so they can spend it and they dont want the hassle of withdrawing it every month. Its nothing to do with keeping below £5640.

Others let the interest roll up year after year to maximise their tax free savings.

Saverdan

That's great, thanks for clearing that up for me, I will just let the interest accumulate in the Isa.

badger09

The interest doesn't form part of your annual ISA allowance. Unless you need it for something else, leave it in there and get interest on your interest - all tax free :beer:

Gordon_the_Moron

Interest is not included in the ISA allowance, you are only allowed to pay in £X per tax year (£5640 for 12/13, £5760 for 13/14) the interest is not included in this.

I never have and don't think I ever will have the interest paid out to an external account, as while it is in the ISA it is included in your tax free sum without using up any allowance. If I needed the money I'd wait until I did need it then withdraw.

The one and only reason I can think of for having the money paid to an external account is if you have a fixed rate fixed term deal and you know that you will need the interest before the account matures. Otherwise never do it!