Transferring to ISA to avoid paying tax on savings

acjohnson

RG2015 wrote: »

Has this changed? I thought that interest on joint bank accounts was automatically split 50:50 without any need to inform HMRC.

From the link given above on HMRC site:

7. What you need to do

You don’t need to do anything to claim your Personal Savings Allowance.
If you fill in a Self Assessment tax return you should carry on doing this as normal.
If you’re a basic rate taxpayer and have savings income or interest of more than £1,000 (£500 for higher rate taxpayers), you’ll have to pay some tax on this.
For sole bank account holders, not in Self-Assessment, HM Revenue and Customs (HMRC) will normally collect the tax by changing your tax code. Banks and building societies will give HMRC the information they need to do this.
If you’re a joint bank account holder, not in self-assessment, then please contact HMRC and report the saving income of interest as appropriate.

acjohnson

msallen wrote: »

I think the point the article is (badly) making is that if you have a flexible Cash ISA you can maintain your historical amount of ISA allowance for future use if/when Cash ISA rates become worthwhile.

For example on 5/4/18 you could put £20K into it and then withdraw it all again on 6/4/18. Then on 5/4/19 you could put £40K in (the previous year's mainatined allowance plus the current year's), and draw it all out again on 6/4/19. Then on 5/4/20 you could put 60K in etc etc.

Then if in a few years you considered it worthwhile to put all your savings into an ISA you will have built up a sizeable allowance.

Thanks for this. I hadn't thought about using an ISA like that.

TCA

acjohnson wrote: »

Thanks for this. I hadn't thought about using an ISA like that.

Bear in mind that not all ISAs are flexible ISAs. Not all providers allow you to put money back after withdrawing and some will, but only for certain products:

https://www.moneysavingexpert.com/savings/flexible-ISAs#providers

RG2015

acjohnson wrote: »

Thanks, I think this helps clarify that HMRC do receive info from banks. From the HMRC link:

"For sole bank account holders... Banks and building societies will give HMRC the information they need..."

HMRC receives info from sole bank accounts (which I have) not in Self Assessment, but if you're a joint bank account holder not in Self Assessment you should contact HMRC with relevant saving income.

RG2015 wrote: »

Has this changed? I thought that interest on joint bank accounts was automatically split 50:50 without any need to inform HMRC.

acjohnson wrote: »

From the link given above on HMRC site:

7. What you need to do

You don’t need to do anything to claim your Personal Savings Allowance.
If you fill in a Self Assessment tax return you should carry on doing this as normal.
If you’re a basic rate taxpayer and have savings income or interest of more than £1,000 (£500 for higher rate taxpayers), you’ll have to pay some tax on this.
For sole bank account holders, not in Self-Assessment, HM Revenue and Customs (HMRC) will normally collect the tax by changing your tax code. Banks and building societies will give HMRC the information they need to do this.
If you’re a joint bank account holder, not in self-assessment, then please contact HMRC and report the saving income of interest as appropriate.

I phoned HMRC this morning as advised by them to check on this. They told me that the interest on my joint accounts would be split 50:50 and I did not need to tell them anything as the banks would give them all the details they needed.

I told them what their website said on their 25th January 2018 update and they still insisted that there was nothing I needed to do and could not comment on their website statement.

Audaxer

msallen wrote: »

I think the point the article is (badly) making is that if you have a flexible Cash ISA you can maintain your historical amount of ASA allowance for future use if/when Cash ISA rates become worthwhile.

For example on 5/4/18 you could put £20K into it and then withdraw it all again on 6/4/18. Then on 5/4/19 you could put £40K in (the previous year's mainatined allowance plus the current year's), and draw it all out again on 6/4/19. Then on 5/4/20 you could put 60K in etc etc.

Then if in a few years you considered it worthwhile to put all your savings into an ISA you will have built up a sizeable allowance.

I'm not sure I understand this. Are you saying if I put £20k into a flexible Cash ISA in the 2017/18 tax year, I can withdraw the money later in the year, i.e. in the 2018/19 tax year, and still retain my 2017/18 allowance, that I could use at any time in the future?

eskbanker

Audaxer wrote: »

I'm not sure I understand this. Are you saying if I put £20k into a flexible Cash ISA in the 2017/18 tax year, I can withdraw the money later in the year, i.e. in the 2018/19 tax year, and still retain my 2017/18 allowance, that I could use at any time in the future?

No, it's probably worth reading https://www.moneysavingexpert.com/savings/flexible-ISAs, which prominently clarifies the basic principle as:

You can take money out of a [flexible] cash ISA at any point, and return it in the same tax year (by 5 April), without it reducing your current year's allowance, which is £20,000.

AlanP_2

eskbanker wrote: »

No, it's probably worth reading https://www.moneysavingexpert.com/savings/flexible-ISAs, which prominently clarifies the basic principle as:

I read that earlier today and it prompted a similar clarification question.

Effectively, does it mean that years ISA investment has to be in the ISA across the change of tax year?

So, pay in 05/04/18 - draw out 07/04/18 - pay back in 05/04/19 along with 18/19 contribution - and so on.......

msallen

AlanP wrote: »

I read that earlier today and it prompted a similar clarification question.

Effectively, does it mean that years ISA investment has to be in the ISA across the change of tax year?

So, pay in 05/04/18 - draw out 07/04/18 - pay back in 05/04/19 along with 18/19 contribution - and so on.......

Yes thats right. It has to be in there across the tax year end/start, and then go back into the same ISA again before the new tax year ends.

TCA

With a flexible ISA, you can withdraw money and replace it in the same tax year without the replacement money counting as an additional subscription towards that tax year's ISA subscription limit. You can also withdraw money from previous tax years and replace this, provided the money is replaced in the same tax year that the withdrawal is made and with the same provider that the withdrawal was made from.

Audaxer

eskbanker wrote: »

No, it's probably worth reading https://www.moneysavingexpert.com/savings/flexible-ISAs, which prominently clarifies the basic principle as:

I think the example in the link clarifies it more. If I understand it correctly now, even if you withdraw for example £80k cash from previous years' contributions, you still don't lose that allowance as long as you pay the £80k back in the same tax year you withdrew it?