Tax question? Time to ditch my cash isa?

Topiary

Backstory: 52 YO non tax payer i.e. not employed / not claiming benefits/ not seeking employment. No mortgage....I live happily albeit somewhat frugally off my savings circa 180k

1. I believe I am allowed to earn up to £5k in savings interest tax free.... can anyone confirm this figure?

2. I've built up 70K over the years in a cash isa and am noticing that fixed rate cash isa rates are poor i.e 1.7% for a 1 year fix compared a normal fixed rate savings (i usually do short term fixes in case my circumstances change) Looks like i can get 2.05% on a one year fixed with charter savings and am therefore looking to end the isa and go with normal fixed rate savings...anyone see any issue I may have with doing this?

3. Am noticing the sharia 1 year fixed accounts offering up to 2.39% (Al Rayan) has anyone experience of using these accounts & is the risk of 'expected' returns worth taking at a £70k level of saving.

4. Anyone aware of how rates on 1 year fixed savings accounts are likely to trend over next 5 years?

Many thanks

Dazed_and_confused

1. I believe I am allowed to earn up to £5k in savings interest tax free.... can anyone confirm this figure?

No, you can earn £17,850 in interest before any tax is due (current tax year). Any income such as wages, rental income, pensions etc will reduce this amount. Worst case scenario down to £0.

Assuming you haven't applied for Marriage Allowance you have your tax free allowance of £11,850.

Once that is used you have upto £5,000 interest which would be taxed at the savings starter rate of tax, currently 0%. The £5,000 is reduced pound for pound by any taxable wages, pension rents etc which exceed your Personal Allowance. If your wages, pensions, rents etc reach £16,850 you lose the whole of the savings starter rate.

Next is the savings nil rate* where upto £1,000 interest will also be taxed at 0%. You are entitled to this even if you don't get to use the savings starter rate.
*commonly known as the Personal Savings Allowance

masonic

Topiary wrote: »

1. I believe I am allowed to earn up to £5k in savings interest tax free.... can anyone confirm this figure?

As a non-taxpayer you could potentially earn even more than this tax free depending on your other income.

2. I've built up 70K over the years in a cash isa and am noticing that fixed rate cash isa rates are poor i.e 1.7% for a 1 year fix compared a normal fixed rate savings (i usually do short term fixes in case my circumstances change) Looks like i can get 2.05% on a one year fixed with charter savings and am therefore looking to end the isa and go with normal fixed rate savings...anyone see any issue I may have with doing this?

You can get close to that rate with less than a 12 month fix. Moving your cash ISA to a provider who allows flexible withdrawals, you could withdraw just after the start of the tax year, fix for 9, 10, 11 months, then return to the ISA to preserve the ISA status of the money, if you wished.

With £180k pot, all in cash, to last you the rest of your life presumably, you should consider getting some financial advice and investing some of it.

3. Am noticing the sharia 1 year fixed accounts offering up to 2.39% (Al Rayan) has anyone experience of using these accounts & is the risk of 'expected' returns worth taking at a £70k level of saving.

There isn't any real risk above normal savings accounts. The "expected" return is only not guaranteed for Sharia compliance and in essence all it means is they could in theory drop the rate like a variable account, but allow you to withdraw early if they did. You still have FSCS protection for accounts operating under a UK banking licence.

4. Anyone aware of how rates on 1 year fixed savings accounts are likely to trend over next 5 years?

I can confidently say nobody knows what will happen to rates in the future, but they couldn't come down much further, so in all likelihood a slow upward trend is what we'll see. How slow is anyone's guess.

Zero_Sum

Cash isa's are only really worth it if you're a higher rate tax payer.
The best rates are about 20% less than best paying notmal savings accounts so if you paid any tax you'd be no worse off anyway

polymaff

Heaven knows why cash isas ever had a premium over other accounts. Probably marketing idiocy but, whatever, it is very different now - and will probably remain so. Cash isas now seem to offer 80% of the other account equivalent, making them return-neutral to basic rate tax-payers, bad news for non-tax-payers and of interest to higher/additional payers.

Whatever rates do, the rates for cash isas will probably track rates for other accounts

With your £180k, you'd have to be achieving a return of 9.9% to push yourself into paying even basic rate.

Good luck with that.

Alexland

polymaff wrote: »

Heaven knows why cash isas ever had a premium over other accounts.

Because when Mini Cash ISAs launched the contributions were limited to £3k per tax year so they were used to provide promotional rates for brand awareness (similar to 5% regular savers today) safe in the knowledge that people couldn't earn too much interest anyway. Often the Mini Cash ISAs with the best rates wouldn't allow transfer in of previous year balances.

Alex

polymaff

Alexland wrote: »

Because when Mini Cash ISAs launched the contributions were limited to £3k per tax year so they were used to provide promotional rates for brand awareness (similar to 5% regular savers today) safe in the knowledge that people couldn't earn too much interest anyway. Often the Mini Cash ISAs with the best rates wouldn't allow transfer in of previous year balances.

Yeah, marketing idiocy.

Actually, there was Government push behind it, too - just like with the predecessors of Regular Savers - the original S.A.Y.E.