ISA Interest Query

kg_uk

Hi

Hopefully this is a quick question and hasn't been answered elsewhere.

We are thinking of putting £15,000 into a Virgin ISA which pays interest monthly. My question is that as we are putting in the maximum allowed amount of £15,000, the interest that is paid every month is going to take the balance over £15,000. Would we then be taxed on the interest earned?

Would be grateful for people's thoughts.

Many thanks

K

TCA

No. Interest is accumulated tax-free in the ISA and in fact you'll earn interest on your interest as the balance compounds. The annual allowance only applies to annual subscriptions. i.e. payments into the account by you.

Fruit_and_Nut_Case

kg_uk wrote: »

...Would be grateful for people's thoughts...

Since you asked, have you considered putting your money across some of the better-paying current accounts that are available? TSB pays 5%, Lloyds 4% and you can open multiple accounts. Taxable, admittedly, but probably better than an ISA.

bowlhead99

Also, you said 'we' are thinking of putting ...

ISA accounts can't be joint (i.e. they are Individual Savings Accounts) - they can only go in one person's name, but if there are two of you, you'll effectively have £15k subscription limit EACH and can open two of them for £30k total subscriptions.

Of course, if there were two of you, you could each have a Santander 123 current account, plus a joint one, each of them paying 3% on balances up to 20k. So that way you would have up to £60k earning you 3% before tax at whatever rate you pay (2.4% after tax for a basic taxpayer and 1.8% for higher rate).

While the Virgin ISAs would only let you get £30k stashed away this tax year and they only pay 1.5% after tax, unless you are willing to commit to a 3-year fixed rate. Even that fixed rate is only 2.25% and would mean you miss out on any rate rises that happen in the next few years because you're locked in with a penalty to get out.

So, the Virgin ISA, along with a lot of other ISA products, is not really compelling, particularly as the other banks that Fruit and Nut Case mentioned above have even higher rates than Santander (although not on such big balances).