Mini cash ISA and tax

cmacneil

Hi -

I think I am missing some fundamental info about mini cash ISAs and tax. Apologies if this is covered elsewhere - my searches didn't uncover any recent discussions.

My questions are as follows:

1/ In a minicash ISA, is it just *earnings* that are tax-free? Or, does the capital invested (say the full £3,000 allocation) reduce my taxable salary as well?

2/ If I take money out of a mini cash ISA, will that money then become taxable?

3/ If, supposing, I put in my full £3,000 allocation before April 5, 08, can I continue to earn tax free interest on this amount in 08/09 *AND* take a new mini cash ISA (also earning tax free interest) in the same period?

4/ I'm also trying to work out the maths and am looking for confirmation on a scenario: I assume 6.0% in ING's mini cash ISA is a (net) better earner than, say, the LloydsTSB monthly saver at 8%, since the Lloyds option would be taxable.

Any help on the above much appreciated!
Chris

CLAPTON

1. the interest is tax free. the capital doesn't reduce your taxable salary.

2. The money you withdraw is free of tax. Of course, if you then choose to invest it in an ordinary saving account the interest earned on it will be taxable.

3. yes once you put money into an ISA it earns interest tax free, year after year until you withdraw it. and yes you can take out a new ISA each year ..... so after a number of years you can have a very nice sum earning money tax free.

4. If you pay equal and regular amounts into an ISA at 6% tax free and taxable account at 8% (i.e. 6.4%) then for the first year the regular saver will earn you more money.

However, in the second year your ISA is still earning 6% tax free whereas the Halifax money has to find a new home at the saver only lasts one year.

cmacneil

CLAPTON - thank you - that's really helpful.

Your answer to #4 begs another question - are the Lloyds interest earnings taxed at a flat 20%, or is it variable according to the tax rate a customer's particular income level would attract?

Chris

RayWolfe

The interest will be taxed at 20%
If you are a Standard Rate tax payer then you not pay any more.
If you are a Higher Rate taxpayer you will have to declare and pay a further 20% to the tax man.
If you are not a tax payer, you should present a R85 form to the bank and they will pay your interest gross.