Can I wrap a savings account with an ISA?

Skwizz

Well not me, but a good friend.

He has been a long-term investor in Norwich & Peterborough's E-Family Regular Saver account.
He's regularly saved into the account for some time but, now the account has stopped taking new investments, he finds it is still giving him 3.39% p.a.
But he's paying tax on it.
He is not a large investor and would not be at all comfortable moving into shares or a more complex savings strategy.


Is it possible to remove the tax liability from the account by wrapping it in an ISA somehow, without sacrificing the interest rate?
N&P have told him 'no'.


The account has less than £15,000 in it and he has not used any of his ISA allowance this year.

planteria

i dont know the account, but they will be right to say no..
the ISA Savings accounts will be set up as ISAs.. he could move the money into a Cash ISA with them, or another provider, but it wouldnt be the same account, or the same rate.
if they are still paying him a rate he is happy with, he might be best to leave it where it is

colsten

Sometimes it is worth paying tax. Even a higher rate tax payer would make more from a 3.39% account than from any instant access ISA.

Biggles

Skwizz wrote: »

Is it possible to remove the tax liability from the account by wrapping it in an ISA somehow, without sacrificing the interest rate?

No. There are ISA savings accounts and there are savings accounts. This is the latter.

Skwizz

Thanks everyone.
When ISA's first came out I thought it was possible to take an existing investment and 'wrap' it in an ISA.
I didn't have any myself but kept seeing adverts implying this was possible.
Did I confuse myself with separate dedicated ISA accounts?
In which case it would not make sense for him to move his cash as, at the moment, a cash ISA would pay less, even without tax.

bowlhead99

There's no concept of 'wrapping up' an existing cash account or existing investment (except in a very limited circumstance like if you get shares from a maturing sharesave scheme from certain employers).

People talk about having an ISA 'wrapper' around their accounts and transferring that between providers, because of the analogy that HMRC can't see through your wrapper and tax what's inside. However, the accounts have to be specific dedicated ISA accounts run by the providers and they will not wrap up any existing account for you.

jimjames

Skwizz wrote: »

Thanks everyone.
When ISA's first came out I thought it was possible to take an existing investment and 'wrap' it in an ISA.
I didn't have any myself but kept seeing adverts implying this was possible.

You are correct that you can effectively do that with investments.

You sell the investment and buy it back inside the ISA. But that's for investments NOT for savings although the same principle applies.

You could "sell" ie close your savings account and deposit the money inside an ISA. But little point when the savings rate is far higher than a cash ISA one.

Skwizz

Thanks everyone for all the useful info.

:T

mad_rich

Remember that his interest will be tax free from next year anyway, with the new savings allowance - ISA or not.

(I don't know if he's a basic or higher rate taxpayer, but given that he has 'less than £15k' in savings, he won't be past the threshold. At 3.39%, a basic rate taxpayer could hold £29,500 and a higher-rate taxpayer £14,750 before it became taxable)

So only one year more of paying tax on it. I would 100% leave it where it is, but obviously be prepared to ditch if the rate drops.

Archi_Bald

mad_rich wrote: »

Remember that his interest will be tax free from next year anyway, with the new savings allowance - ISA or not.

provided the next government actually implements the Budget proposals.

mad_rich

Archi_Bald wrote: »

provided the next government actually implements the Budget proposals.

True. Always a risk (although Balls has said he won't reverse any of the Budget).

In the OP's friend's case, it's not a huge problem. If the savings allowance is not implemented, he can quickly stick his entire savings in an ISA in one year's allowance (whereas those burdened(!) with £100k wouldn't be able to do).

The same is true if interest rates were to shoot up. At 7% he would hit the threshold much quicker, so might want to shelter some cash within an ISA. Something which he'd be able to do very quickly.