Pension Tax

Melmar · 30 April 2014 at 8:15PM

Hi

My parents who are in their 80's are thinking of starting a cash ISA. However they are concerned that interest from the ISA will mean that they have to much in the way of savings, pushing them above a threshold which would mean that they have to pay tax on their pension. I cant find what this threshold may be also I thought income from an ISA would be tax free.

cheers for the help

Lokolo · 30 April 2014 at 8:18PM

Income is general taxable. So working income, pension income and savings income are the most widely used types of income that is taxable. ISA income is not taxable and therefore will not count towards total taxable income.

The capital itself (the amount you have in savings) can be used to reduce benefits though.

You can have hundreds of thousands of pounds and not pay any income tax, if its all in a 0% account, not earning interest!

Melmar · 30 April 2014 at 8:28PM

Hi

So would I be correct in thinking, it is income alone that would mean a pensioner would pay tax and not the amount of savings that pensioner has?

cheers

Lokolo · 30 April 2014 at 8:34PM

Income tax yes. That is taxable income though, of which ISA income isn't (normal savings accounts is taxable though!)

The amount of savings would go towards the estate (savings, property etc.) when they pass away, which could mean inheritence tax, but the allowance for that is £325k per person.