New to ISA

Polly20

I have only just become a taxpayer again and wanted to invest in an ISA. Got right to the end of an online application on a one year fixed cash ISA and a warning came up that if l asked for the interest to be paid into my current bank account it would lose its tax free status.. l phoned their helpline and they said it's TRUE, the minute you take your interest it becomes taxable. Can somebody explain what is the point of an ISA if the interest is taxed when you take it? Very confused.

eskbanker

All the interest is tax-free when kept inside the ISA shelter, but if you choose to withdraw the interest out to a non-ISA taxable bank account then from then on any interest subsequently earned on that withdrawn interest is taxable, i.e. there is no tax charge on the withdrawal of the interest from the ISA itself, but by virtue of removing it from the ISA, anything earned from that money thereafter becomes taxable.  Why would you want to take the interest out of the ISA into your bank account?

masonic

The statement "the minute you take your interest it becomes taxable" is untrue. As eskbanker explains, only interest earned on that interest is taxable. So if you put £20k in an ISA and after a year earn the paltry sum of £200, paid to your current account, not a penny of that £200 is taxable.

Polly20

Be gentle with me folks l am recently bereaved and was a nin taxpayer so the savings we had were in one year high interest bonds which out performed ISAs which is why l dont understand them. My next question may be equally naive. Can l put 20 I into a cash ISA this tax year and another 20k into another cash lSA with the same provider after 6th April 2020 using next years allowance ? 

eskbanker

Polly20 said:

Be gentle with me folks l am recently bereaved and was a nin taxpayer so the savings we had were in one year high interest bonds which out performed ISAs which is why l dont understand them. My next question may be equally naive. Can l put 20 I into a cash ISA this tax year and another 20k into another cash lSA with the same provider after 6th April 2020 using next years allowance ? 

The short answer is yes, but there are various other options too:

1. You may still be within the initial payment window for the first ISA and be able to subscribe the 2020/21 money into the same ISA rather than needing to open a second one.
2. You could choose to use a different provider for the 2020/21 ISA, there's no obligation to use the same providers.
3. Just because you're a taxpayer doesn't mean that ISAs will be a better bet than taxable accounts, given the personal savings allowance that reduces tax liabilities, so the one year high interest bonds you refer to may still be an appropriate answer.  Some get bogged down in trying to minimise tax rather than focusing on maximising net return....

Alexland

If you are recently bereaved then you may benefit from Additional Permitted Subscriptions for a surviving spouse or civil partner of a deceased ISA holder?