ISA or tax free

IvanOpinion

Just a question out of curiosity. Over the last year or so I have transferred all our money from my name into my wifes name (she is a non tax payer) ... generally it is in simple savings accounts and the apporpirate R85's have been completed..

I was just wondering if there is any advantage in putting some money in an ISA in her name as opposed to straighforward savings?

Ivan

A_Nice_Englishman

If she becomes a taxpayer in the future she will not have to pay tax on the money in an ISA. I can't think of a downside to a non-taxpayer having her savings in an ISA so I would transfer as much as possible

CLAPTON

as englishman says if she becomes a tax payer later she will benefit from the tax shelter.
the only disadvantage of ISAs at the moment is that their rates are slightly less than the best ordinary accounts... like if you are saving monthly you can get 7.1% in yorkshire BS regular saver which is hard to match in an ISA

flossy_splodge

Except you then need to factor in paying tax on the interest you earn if not in an ISA. I'm sure someone on here will be able to tell us what the differential needs to be between the rate on an ISA and that on 'other' savings accounts for the 'other' account to generate a better return.:T

bristolleedsfan

flossy_splodge wrote: »

Except you then need to factor in paying tax on the interest you earn if not in an ISA. I'm sure someone on here will be able to tell us what the differential needs to be between the rate on an ISA and that on 'other' savings accounts for the 'other' account to generate a better return.:T

as previous poster said yorkshire pays 7.10 gross, if the person became a taxpayer on unearned income they would pay tax at 10% rate so 7.10% would become 6.39% which is higher than most isas.

if the person started paying tax based on earned income ie @20% the 7.10% rate would become 5.68% which is still better than some isas and not much below the higher paying isas, gap has narrowed due to yorkshire not passing on recent base rate rises in full.

however brittannia have a homesaver account paying 7.50% gross which equates to 6.75% at 10% unearned income rate and 6% at 20% earned income rate, the latter of which isnt beaten by many variable rate isas.

fixed 1 year bonds paying 6.70% gross equate to 6.03% at 10% unearned income rate which is a higher rate than most isas.

one advantage of putting some money in a isa is that this may prevent a non taxpayer falling into the 10% unearned income tax band, especially significant in years where building society merger payments are being made, so in some circumstances may be worth foregoing a little bit of interest in order to avoid falling into the 10% band although as stated earlier their are non isa accounts which pay more/as much/not much less even if taxed at 10% than some isas pay.

putting these rates into some context nationwides cash isa rates ( not the best and not the worst) are

1-999........................ 5.55%
10000-24999 ...............5.65%
25000+ ......................5.75%

flossy_splodge

See I just knew there was someone out there who understands! Wow, impressive bristolleedsfan, thanks for that! :j

CLAPTON

Its always difficult to give good advice with so little information about the specific circumstances.

But to put it in context, if the OP's other half is a stay at home mother with no earnings atall, then if interest were at 6% grosss she could have 87,000 in saving before moving into the 10% tax band.
So it depends how much we are talking here.

ManAtHome

The cash ISA would start to pay off when OH starts drawing a pension.

cheerfulcat

bristolleedsfan wrote: »

as previous poster said yorkshire pays 7.10 gross, if the person became a taxpayer on unearned income they would pay tax at 10% rate so 7.10% would become 6.39% which is higher than most isas.

if the person started paying tax based on earned income ie @20% the 7.10% rate would become 5.68% which is still better than some isas and not much below the higher paying isas, gap has narrowed due to yorkshire not passing on recent base rate rises in full.

Sorry, this is incorrect.

Everyone has a personal allowance - the basic allowance for people under 65 is £5225. Income in this band is not taxed, regardless of source.

Next comes the starting rate band, which is the first £2230 over your allowance - this is taxed at 10%, again regardless of source, though from next tax year the starting rate band has been abolished for earned income.

Then comes the basic rate band. This is the next £32,369. Earned income is taxed at 22% in this band ( reducing to 20% as of next tax year ). Savings are taxed at 20% and dividends at 10% in this band. Dividends are treated as tax-paid so for a basic rate taxpayer there is no more to pay.

Any additional income above this is charged at 40% ( higher rate ), except dividend income which is taxed at 32.5%.

All figures are for the current tax year.

IvanOpinion, yes, use both of your ISA allowances to the full. You have nothing to lose!

bristolleedsfan

CLAPTON wrote: »

Its always difficult to give good advice with so little information about the specific circumstances.

But to put it in context, if the OP's other half is a stay at home mother with no earnings atall, then if interest were at 6% grosss she could have 87,000 in saving before moving into the 10% tax band.
So it depends how much we are talking here.

i wasnt giving advice, i was merely answering a post.

its also true that people could quote other isa examples against other non isa products and come up with different outcomes.

its true that non payers circumstances can vary, its also true that whilst the 10% non earnt band remains their is no guarantee that it will last forever. Mr brown may end that at some point to bring it into line with the starting tax rate for earnt income. ( not this side of an election i doubt though :rotfl: )

bristolleedsfan

cheerfulcat wrote: »

Sorry, this is incorrect.

Everyone has a personal allowance - the basic allowance for people under 65 is £5225. Income in this band is not taxed, regardless of source.

Next comes the starting rate band, which is the first £2230 over your allowance - this is taxed at 10%, again regardless of source, though from next tax year the starting rate band has been abolished for earned income.

Then comes the basic rate band. This is the next £32,369. Earned income is taxed at 22% in this band ( reducing to 20% as of next tax year ). Savings are taxed at 20% and dividends at 10% in this band. Dividends are treated as tax-paid so for a basic rate taxpayer there is no more to pay.

Any additional income above this is charged at 40% ( higher rate ), except dividend income which is taxed at 32.5%.

All figures are for the current tax year.

IvanOpinion, yes, use both of your ISA allowances to the full. You have nothing to lose!

im fully aware of the tax allowances and tax rates etc, posters were not talking about what is best to do for this tax year only hence reason why i quoted tax bands that we KNOW will be in force after this tax year.

look at whos post i was answering .

fact remains that "some" non isa accounts pay a higher rate of interest than "some" isa accounts even at 10% and 20% tax rates.

further examples, brittania BS who are launching a 5 million pound tv advertising campaign on monday to try and make people believe that mutuality pays and be made aware of brittania brand pays on its instant access cash isa 5.35% on 1.00-2999 5.40% on 3000+ and 5.45% on 9000+