Paying tax on ISA withdrawals

phillro

I understand that money paid into an ISA is free of income tax, up to an annual limit.  When I come to withdraw money from the account, is the withdrawn amount then subject ti income tax?  Where can I find the rules written down in a simple way?

JGB1955

There is no tax on closure or withdrawal from an ISA.

Individual Savings Accounts (ISAs): How ISAs work - GOV.UK (www.gov.uk)

jimjames

ISAs are very simple. Any money inside the ISA wrapper is free of tax. Once you remove it then you may have to pay tax on any interest you earn from it outside the ISA. The action of withdrawing money does not generate any tax liability, that's the whole point of ISAs.

phillro

Thank you, guys - very helpful.  It does, however, lead me to ask another rather simple-minded question.  If I am an income tax-payer, and I put money into my ISA, am I paying in money on which I have paid income tax, or is the ISA savings something that can be paid out of gross income, before tax?

Dazed_and_C0nfused

You can put money into an ISA from wherever you want.  Taxed income, untaxed income or from down the back of the sofa if you find some there 

But none of it will alter the tax you pay on the first place.

An ISA is tax efficient in the sense that you don't pay income (or Capital Gains) tax on the money the ISA generates.

jimjames

phillro said:

Thank you, guys - very helpful.  It does, however, lead me to ask another rather simple-minded question.  If I am an income tax-payer, and I put money into my ISA, am I paying in money on which I have paid income tax, or is the ISA savings something that can be paid out of gross income, before tax?

If you want to invest money from gross income then a pension is your answer.

Albermarle

phillro said:

Thank you, guys - very helpful.  It does, however, lead me to ask another rather simple-minded question.  If I am an income tax-payer, and I put money into my ISA, am I paying in money on which I have paid income tax, normally yes, although it could be from another source, like a gift or lottery win, or is the ISA savings something that can be paid out of gross income, before tax? Not normally 

See in bold above. A pension allows payments in before tax , or if it is after tax , then some tax relief/repayment is made.

400ixl

ISA's are a structure where you will have paid any relevant income taxes prior to investment. When you then withdraw funds they are not subject to further taxation.

If you want pre-tax then you need to look at salary sacrifice into pensions, or post tax pensions where you can have the provider reclaim the taxed element.