Does an ISA need to be declared on the Self-Assessment Tax Return?

Mtravers

Hi All,

I wonder if someone on this forum can help me get my head around ISAs and the tax implications.

Just to give you a little bit of background, I am in the middle of buying my first investment property and will be renting it out once bought.

I work a 9-5 and so the rent received from this property will be a form of passive income which I will need to disclose at the end of the tax year in my self-assessment tax return.

However, am I right in thinking that if I open an ISA and have the tenants transfer the rent into this, up to the threshold of c.£15,000, then I will not need to pay income tax on this income (not have to declare it in my self-assessment at the end of the tax year)? Anything over this threshold I will need to disclose and pay income tax on it and the given rate.

OR have I got it all wrong and I pay income tax on the money which is transferred into the ISA, but do not pay tax on any interest / capital gains received from the money in the ISA?

Thank you for your help in advance.

Best wishes,

Mackenzie

alanq

Mtravers wrote: »

... I pay income tax on the money which is transferred into the ISA, but do not pay tax on any interest / capital gains received from the money in the ISA?

The above.

ISA interest / capital gains do not have to be declared. Earnings such as rent do have to be declared, and after any allowances tax paid, even if paid directly into an ISA.

See HMRC info on renting out.
https://www.gov.uk/renting-out-a-property/paying-tax

colsten

Your rental income is taxable, regardless of how you use the income.

Aretnap

Putting the rental income into an ISA means that any interest and/or capital gains the money susequently earns are not taxable. It doesn't mean that the rental income was not taxable in the first place.

If you do want to avoid paying tax on the income you could pay it (or some of it) into a pension instead. You will still have to declare the income, but you can claim back any tax you pay on it in the form of tax relief. The disadvantage is that you can't then spend the money until your late 50s (the exact age depends on your date of birth).

jamei305

You don't pay tax an any gains made by things located in the ISA. If the gain was made by something located outside the ISA, you must pay appropriate taxes before moving the net gains into the ISA.

At the moment, you are not allowed to put rental property into an ISA, although given the c15K limit you would likely only be able to fit in a garage in any case.

jimjames

To answer the subject of the thread not the subsequent questions, an ISA does not need to be declared on a Self Assessment tax return. As per previous replies you still need to pay tax on your income though.

Mtravers

All,

Thank you for coming back to me on this, your help is much appreciated. Invaluable.

M