£5k starting savings allowance - Query is it worth having an ISA?

vixen1500

This £5,000 ‘starting rate for savings’ means anyone with total taxable income under their personal income tax allowance plus £5,000 will not pay any tax on your savings.  This means if your total taxable income is less than £17,500 for 2020-21, you won’t pay any tax on your savings. It helps to think of these allowances sitting on top of each other; first the personal allowance (£12,500 for 2020-21), then the £5,000 starting savings rate at 0%, and finally the personal savings allowance worth up to £1,000.

Have I got this right - As long as earnings under £12,500, you wont pay any tax on interest upto £6,000.00?  So you can have a total income of £18,500 with no tax to pay?
(Not that I get £6,000 worth of interest, just been trying to work out if it is worth having ISAs any more)

ColdIron

Broadly yes. I wouldn't dismiss ISAs out of hand though, your circumstances may change as might other legislation

https://www.gov.uk/apply-tax-free-interest-on-savings

zagfles

There are several other ways taxable income (which includes income covered by an allowance) is used, for instance tax credits, student loan assessments, some benefits. So it can sometimes be beneficial to have tax free interest from an ISA rather than taxable interest even if covered by an allowance and no tax is paid.

Zanderman

Yes...  no point in special tax-free savings accounts if you aren't going to pay tax on savings interest. Especially when other savings accounts pay more interest than Cash ISAs.
The primary arguments I can see for an ISA in these circs are:

• You find an ISA that pays wonderful rates of interest, better than savings outside an ISA (not possible at the moment!)
• You want to build up a tax-free interest-paying lump savings sum over several years and, in later years, you expect to be earning much more so will then pay tax on interest (unlikely if, like me, you've no prospect of massively increased income at this stage of career)
• You have other reasons to have an ISA - like a LISA which has other benefits (won't apply unless your're under 40)
• You think the chancellor will change the rules and massively slash the starting rate for savings (unlikely within any given tax year) 

This is of course assuming Cash ISAs v savings accounts not Stocks & Shares ISAs v investment accounts but similar issues apply there too.

Dazed_and_C0nfused

vixen1500 said:

This £5,000 ‘starting rate for savings’ means anyone with total taxable income under their personal income tax allowance plus £5,000 will not pay any tax on your savings.  This means if your total taxable income is less than £17,500 for 2020-21, you won’t pay any tax on your savings. It helps to think of these allowances sitting on top of each other; first the personal allowance (£12,500 for 2020-21), then the £5,000 starting savings rate at 0%, and finally the personal savings allowance worth up to £1,000.

Have I got this right - As long as earnings under £12,500, you wont pay any tax on interest upto £6,000.00?  So you can have a total income of £18,500 with no tax to pay?
(Not that I get £6,000 worth of interest, just been trying to work out if it is worth having ISAs any more)

Not quite.  Your Personal Allowance can be used against interest so you could have earnings of say £8,500 and savings interest of £10,000 and not pay any tax (assuming you haven't applied for Marriage Allowance).

And don't forget the first £2,000 of dividend income is also taxed at 0%.

vixen1500

Thanks, just wanted to check as need to find new home for my Nationwide ISA money (Tempted to just put it under the mattress - in a fire-proof box)  

EthicsGradient

vixen1500 said:

This £5,000 ‘starting rate for savings’ means anyone with total taxable income under their personal income tax allowance plus £5,000 will not pay any tax on your savings.  This means if your total taxable income is less than £17,500 for 2020-21, you won’t pay any tax on your savings. It helps to think of these allowances sitting on top of each other; first the personal allowance (£12,500 for 2020-21), then the £5,000 starting savings rate at 0%, and finally the personal savings allowance worth up to £1,000.

Have I got this right - As long as earnings under £12,500, you wont pay any tax on interest upto £6,000.00?  So you can have a total income of £18,500 with no tax to pay?
(Not that I get £6,000 worth of interest, just been trying to work out if it is worth having ISAs any more)

Yes, though remember that all pensions, including the state one, count as 'earnings' for this purpose.