Another tax on savings question pls 3 November 2022 at 10:42PM in Savings & investments 11 replies 772 views

JacJac1

I've been trying to get my head round this today. I'm higher rate tax payer, so I believe this means I will pay 40% on any interest over £500. I am nearly at this limit.

I opened a HSBC investment account out of curiosity early in the year which has a couple of hundred pounds in, but I haven't really used it. Alongside the investment account, HSBC asks you to open an ISA for uninvested cash, which pays 0% interest. Normally this wouldn't be an issue but after watching Martin's video today, I'm now thinking that I should put some of my savings into a cash ISA to save paying tax. However, does the fact that I have the uninvested cash ISA (and have paid into it this year) mean that I won't be able to open a normal cash ISA?

If I can transfer to another cash ISA, will I be able to pay into it? Even if its the HSBC one which pays 1.4%, it's better than nothing. My plan would be to transfer £16k of savings (I have used £4k on my Lifetime ISA) and then I just pay tax on the rest. I tried to call HSBC today but gave up after an hour on hold. Any advice would be appreciated please. Savings are for a house deposit.

MX5huggy

Did you open a Stocks and Shares ISA with HSBC? that you are holding cash in. 

JacJac1

No, its not a stocks and shares ISA I don't think. The account is called "Global Investment Centre uninvested cash ISA", so from that I am assuming its a Cash ISA but I need to speak to them to confirm (when I can get through).

badger09

You say ‘earlier in the year’. I’m assuming you mean you’ve paid into HSBC ISA(s?) since 6/4/22. 

The terminology is confusing. 

Do you actually have 2 separate ISAs with HSBC, a S&S ISA & a Cash ISA? If so & you’ve paid into both since 6/4/22, then you can’t pay into another Cash ISA before 6/4/23. UNLESS HSBC is one of the few providers which allow ‘Split’ ISAs like Nationwide. 

HMRC rules would allow you to transfer the Cash ISA amount to another provider and then pay into that one. 

Albermarle

I have had a quick look at HSBC website 
Global Investment Centre | GIC ISA - HSBC UK

As far as I can see, you can either have 
1) a Stocks and shares ISA- uninvested cash sits within this ISA
2) a normal investment account, in which you also have an uninvested cash facility, but no mention of a separate uninvested cash ISA .

OP The way you describe it means it would be an unusual set up, and one of the two options above are what you would normally  expect. So I think you have probably got confused somewhere along the line. Can you not check the paperwork/your on line account again? 

deinoflex

Albermarle said:

I have had a quick look at HSBC website 
Global Investment Centre | GIC ISA - HSBC UK

As far as I can see, you can either have 
1) a Stocks and shares ISA- uninvested cash sits within this ISA
2) a normal investment account, in which you also have an uninvested cash facility, but no mention of a separate uninvested cash ISA .

OP The way you describe it means it would be an unusual set up, and one of the two options above are what you would normally  expect. So I think you have probably got confused somewhere along the line. Can you not check the paperwork/your on line account again? 

I have both an HSBC S&S ISA and a GIA account and I have 2 uninvested cash accounts -

GIC ISA UNINVESTED CASH, &

GIC GIA UNINVESTED CASH ACCOUNT

JacJac1

Thanks for the replies. I just managed to speak to HSBC and they confirmed that the GIC ISA UNINVESTED CASH (which is what I have, same as deinoflex) is a stocks and shares ISA. The guy on the phone admitted that the terminlogy is confusing. The good news is that I'm free to open a Cash ISA which is exactly what I wanted.

So with this year's £20k split across my LISA and a new cash ISA, I will suck up the 40% tax on the remainder. Have to admit that I was completely clueless about the tax on interest situation until yesterday, as I assumed it would only be super high earners or those with hundreds of thousands in savings who would need to think about it!

Zuzi

Just a comment from another higher rate payer - I too like the idea of tax-free interest so have opened my first Cash ISA recently.
 
HOWEVER I am also aware that sometimes the difference between the ISA interest rate and a different savings account rate is so big, that it is worth having to pay the 40% tax. My new ISA pays 3.7% for a one year fixed term, if it only paid e.g. 1.5% I would not have opened it, I'd put the money into e.g. a 2.75% easy access account because the gains will still be higher, even after tax.

Albermarle

HOWEVER I am also aware that sometimes the difference between the ISA interest rate and a different savings account rate is so big, that it is worth having to pay the 40% tax.

Current ISA and non isa savings rates are not that far apart, so very likely the ISA would be most beneficial for a 40% taxpayer.

Have to admit that I was completely clueless about the tax on interest situation until yesterday, as I assumed it would only be super high earners or those with hundreds of thousands in savings who would need to think about it!

To put this into context, taxing savings interest for the majority has always been the case. The £1000 tax free interest for basic rate taxpayers, and £500 for 40% taxpayers is a relatively new concession ( 5 years ??) and before that all interest was taxed , unless you were a non taxpayer/low earner, or the money was in an ISA.

Also the UK has some of the most generous tax breaks in the world in this area. In most other countries they can only dream about putting £20K a year into a tax protected account like an ISA, or having a £1000 tax free allowance.

JacJac1

Zuzi said:

Just a comment from another higher rate payer - I too like the idea of tax-free interest so have opened my first Cash ISA recently.
 
HOWEVER I am also aware that sometimes the difference between the ISA interest rate and a different savings account rate is so big, that it is worth having to pay the 40% tax. My new ISA pays 3.7% for a one year fixed term, if it only paid e.g. 1.5% I would not have opened it, I'd put the money into e.g. a 2.75% easy access account because the gains will still be higher, even after tax.

Yes, I did consider this, but I don't want to go for a fixed-term in case I need to access the money. I've gone for Marcus since that's where my savings are.

Albermarle said:

To put this into context, taxing savings interest for the majority has always been the case. The £1000 tax free interest for basic rate taxpayers, and £500 for 40% taxpayers is a relatively new concession ( 5 years ??) and before that all interest was taxed , unless you were a non taxpayer/low earner, or the money was in an ISA.

Also the UK has some of the most generous tax breaks in the world in this area. In most other countries they can only dream about putting £20K a year into a tax protected account like an ISA, or having a £1000 tax free allowance.

I'm learning and forums like this have been a huge help. To be honest I've never really had savings before so this is all new - 7 years ago I was about £30k in debt!

YellowStarling

 JacJac1 said:

...

So with this year's £20k split across my LISA and a new cash ISA...

As per Badger's post, if you have contributed your "couple of hundred pounds" to the S&S ISA via the HSBC GIC on or after 06 April, then this will count towards your £20k allowance - in other words, if you plan to contribute the full £4k to your LISA before 05 Apr 2023, then you won't have a full £16k for a new cash ISA if you've also contributed to the GIC S&S ISA in this tax year.