ISA guru question

pookey

Johnjdc said:

No. If it's not in an ISA, it's not tax-free.

Thank you for confirming this. 

I don't understand the point of putting money into the ISA to then immediately take it out. Wouldn't it be easier to put it in higher savings first and then put it in an ISA towards the end of the tax year? 

Or am I missing something please? 

pookey

jimjames said:

pookey said:

pecunianonolet said:

The Paragon Triple Access Cash ISA at 3.2% is indeed attractive, especially because of the monthly interest payment but the 3 withdrawals per tax year are a bit an annoyance.

Better is the Coventry Limited Access ISA Online (4) which currently is at 3% but is going up to 3.25% on 4th of April and interest is paid either monthly or annualy and there are 6 withdrawals allowed. Although, if you want to transfer away (closure) you get a 50 day interest penalty so to play risk free, only 5 withdrawals really. 

Another nice alternative is Principality Online ISA. The rate is only marginaly worse with 3.1%, interest only paid annualy but unlimited withdrawals so a great account for drip feeding reg savers. They say they currently review rates after last BOE meeting so rate might or might not go up.

The last to consider would be the Skipton ISA Tracker, unlimited withdrawals, interest either monthly or annualy but it tracks 1.25% below base rate so just now 2.75% but after the last BOE rise it should get up to 3% soonish. Worst rate out of the ones on offer at the moment but if BOE is going to increase again by 0.25bpt it could go up to 3.25% but that would not be, if it happens, be until 11th May.

So strongest contenders are Coventry and Principality, leaning more towards Coventry

I also found that MSE is mentioning the trick but it's not really obvious to find so probably get's lost easily on their site. 
https://www.moneysavingexpert.com/savings/flexible-isas/

Does this mean the whatever money that's been invested that came out of the ISA is also tax free please?
So if I paid in 20,000 at the start of the tax year and then withdraw 19,999, wherever I invest it would be tax free please? 

No, the whole idea of the ISA is that everything inside it is tax free. Once outside the wrapper the interest it generates is taxable but subject to the various allowances may not attract tax. With ISA rates now on a par with non ISA rates the trick of removing money is much less attractive.

Thank you for explaining, I was wondering why  do it this way  when it could be down towards the end after everything has maximised 

jimjames

pookey said:

Johnjdc said:

No. If it's not in an ISA, it's not tax-free.

I don't understand the point of putting money into the ISA to then immediately take it out. Wouldn't it be easier to put it in higher savings first and then put it in an ISA towards the end of the tax year? 

No reason why you couldn't do that as long as you've got the ISA open before the end of the tax year. Like I said above it's pretty irrelevant now when ISA and non ISA rates are much the same. When you could get 5% outside an ISA and 1% inside it was far more useful and allowed you to retain your ISA allowance while getting a better interest rate.

pecunianonolet

The tirck is not relevant for people who can put the money into an ISA, either flexible or with a very attractive fix and bsically just forget abaout it. In this case, I wanted the ISA protection in order to not loose the ISA benefit, took out the money so I can work with it for some time, because part of it is from a stoozing pot, some is actually spending money, etc. However, I know that through future income and resulting savings of the next 12 months I will have no problem putting it back later in the year. 

Got a rather complicated setup I admit but for us it makes sense that way and the plans we have so it has to stay in cash, more or less accessible by utilising PSA rates, interest, etc. 

I only opened a few reg savers today because that will allow me to lock in high rates, have them guranteed for 12 months but the interest is annual so going to be part of tax year 24/25. In all my planning I consider short, mid and long term, taking into account expected interest yield development, economy, own circumstances and money needs as well as future income, etc. 

At the end of the day, why would I give up an ISA allowance when I don't have to. Taking money out of an ISA can be done anytime, putting in is restricted so better to play safe.

pookey

pecunianonolet said:

The tirck is not relevant for people who can put the money into an ISA, either flexible or with a very attractive fix and bsically just forget abaout it. In this case, I wanted the ISA protection in order to not loose the ISA benefit, took out the money so I can work with it for some time, because part of it is from a stoozing pot, some is actually spending money, etc. However, I know that through future income and resulting savings of the next 12 months I will have no problem putting it back later in the year. 

Got a rather complicated setup I admit but for us it makes sense that way and the plans we have so it has to stay in cash, more or less accessible by utilising PSA rates, interest, etc. 

I only opened a few reg savers today because that will allow me to lock in high rates, have them guranteed for 12 months but the interest is annual so going to be part of tax year 24/25. In all my planning I consider short, mid and long term, taking into account expected interest yield development, economy, own circumstances and money needs as well as future income, etc. 

At the end of the day, why would I give up an ISA allowance when I don't have to. Taking money out of an ISA can be done anytime, putting in is restricted so better to play safe.

Yes I understand what you mean. I opened an ISA last month but due to the 1k PSA and having to pay off my house I haven't needed one in a while. Now that I have more savings I'm trying to work out all the tricks that could work for me.

So when you put in 20k and then took out 19,999 would it be the same as putting £1 in to keep the ISA open? Or does it need to be funded to the maximum amount please? As my ISA also has limited withdrawal with a very good rate. 
So if I can fund it with £1 to keep it open I wouldn't need to use a withdrawal at the beginning. 

masonic

pookey said:

So when you put in 20k and then took out 19,999 would it be the same as putting £1 in to keep the ISA open? Or does it need to be funded to the maximum amount please? As my ISA also has limited withdrawal with a very good rate. 
So if I can fund it with £1 to keep it open I wouldn't need to use a withdrawal at the beginning. 

This trick isn't useful when you have a balance of £20k in the ISA. But suppose you had £40k built up over more than one tax year. You could not 'carry' the ISA status of more than £20k without ISA flexibility, but if an ISA is flexible, the whole balance could be withdrawn and replaced within the tax year. Likewise for an ISA containing only previous year money, this could be flexibly withdrawn and replaced without reducing your ability to pay £20k into ISAs later in the tax year.

Johnjdc

pookey said:

Johnjdc said:

No. If it's not in an ISA, it's not tax-free.

Thank you for confirming this. 

I don't understand the point of putting money into the ISA to then immediately take it out. Wouldn't it be easier to put it in higher savings first and then put it in an ISA towards the end of the tax year? 

Or am I missing something please? 

Why would you want your savings in a taxable account for any part of the year, if you aren't planning to spend them?

pecunianonolet

Johnjdc said:

pookey said:

Johnjdc said:

No. If it's not in an ISA, it's not tax-free.

Thank you for confirming this. 

I don't understand the point of putting money into the ISA to then immediately take it out. Wouldn't it be easier to put it in higher savings first and then put it in an ISA towards the end of the tax year? 

Or am I missing something please? 

Why would you want your savings in a taxable account for any part of the year, if you aren't planning to spend them?

In our case:

20k into Virgin 1y fix ISA at 4.25% for me. I am a higher rate tax payer, so have only th lower PSA level. I have fixes and reg saversmaturing this tax year so my new PSA is basically almost fully consumed with anticipated future interest payments. So the ISA makes sense because the interest I would need to earn on the market would be 7.055% before the "open market" rate is more profitable compared to the ISA rate. 4.25*1.66 = 7.055

My partner is a standard rate tax payer and had savings of around 10k but got a good salary increase allowing for more savings being put aside in the future. So we went with a flexible ISA, Coventry 3.25%, and put the 10k in and I toped it up with 10k. So the ISA allowance of 40k for both of us has been secured. Full PSA is available in this case. So if we do the math, 3.25%*1.25 = 4.0625

So any interest earned on the "open market" above 4.0625% is giving my partner a higher gain compared to leaving money in an ISA. 

So it made sense to take out the £19.999, and use them to drip feed various reg savers as they are all well above the ~4.1% rate needed. Our focus is espcially on Natwest/RBS reg saver at 6% Gross, paying monthly interest and being able to top it up with round ups. In that way, my partner is utilising the £1000 PSA fully. 

In my case, drip feeding from a normal easy access account would work but I would not really benefit too much from it as I would pay the higher tax. In my case drip feeding would be sensible from a flex ISA with unlimited withdrawals, e.g. Principality 3.1%

At any point in this tax year my partner can replenish the £19.999 back into the Coventry ISA, and the £20k allowance of this tax year can be put anywhere else. In my case the same, still have the full allowance left. 

Hope that explains the benefit of the flex ISA, but I realise it is not suitable for everyone. Especially if you don't need access to the funds at all the questions is valid why you want to take it out. For us it makes total sense to maximise given allowances with highest possible rates by keeping the advantage of the ISA protection. 

My partner is anticipating 18k net savings over the next 12 months, I expect at least 24k, not including any bonus, interest or other income so we should be able to do exactly the same again by the end of this tax year. The now added layer of complexity is the development if interest rates.

I expect rates to remain high at least over the summer, we'll see possibly another small rise of 25bps in May, it will plateau most likely after for a while before we might see slow reductions in autumn. Assuming no external shocks, more collapsing banks (unlikely), war escalations, etc. 

pookey

pecunianonolet said:

Johnjdc said:

pookey said:

Johnjdc said:

No. If it's not in an ISA, it's not tax-free.

Thank you for confirming this. 

I don't understand the point of putting money into the ISA to then immediately take it out. Wouldn't it be easier to put it in higher savings first and then put it in an ISA towards the end of the tax year? 

Or am I missing something please? 

Why would you want your savings in a taxable account for any part of the year, if you aren't planning to spend them?

In our case:

20k into Virgin 1y fix ISA at 4.25% for me. I am a higher rate tax payer, so have only th lower PSA level. I have fixes and reg saversmaturing this tax year so my new PSA is basically almost fully consumed with anticipated future interest payments. So the ISA makes sense because the interest I would need to earn on the market would be 7.055% before the "open market" rate is more profitable compared to the ISA rate. 4.25*1.66 = 7.055

My partner is a standard rate tax payer and had savings of around 10k but got a good salary increase allowing for more savings being put aside in the future. So we went with a flexible ISA, Coventry 3.25%, and put the 10k in and I toped it up with 10k. So the ISA allowance of 40k for both of us has been secured. Full PSA is available in this case. So if we do the math, 3.25%*1.25 = 4.0625

So any interest earned on the "open market" above 4.0625% is giving my partner a higher gain compared to leaving money in an ISA. 

So it made sense to take out the £19.999, and use them to drip feed various reg savers as they are all well above the ~4.1% rate needed. Our focus is espcially on Natwest/RBS reg saver at 6% Gross, paying monthly interest and being able to top it up with round ups. In that way, my partner is utilising the £1000 PSA fully. 

In my case, drip feeding from a normal easy access account would work but I would not really benefit too much from it as I would pay the higher tax. In my case drip feeding would be sensible from a flex ISA with unlimited withdrawals, e.g. Principality 3.1%

At any point in this tax year my partner can replenish the £19.999 back into the Coventry ISA, and the £20k allowance of this tax year can be put anywhere else. In my case the same, still have the full allowance left. 

Hope that explains the benefit of the flex ISA, but I realise it is not suitable for everyone. Especially if you don't need access to the funds at all the questions is valid why you want to take it out. For us it makes total sense to maximise given allowances with highest possible rates by keeping the advantage of the ISA protection. 

My partner is anticipating 18k net savings over the next 12 months, I expect at least 24k, not including any bonus, interest or other income so we should be able to do exactly the same again by the end of this tax year. The now added layer of complexity is the development if interest rates.

I expect rates to remain high at least over the summer, we'll see possibly another small rise of 25bps in May, it will plateau most likely after for a while before we might see slow reductions in autumn. Assuming no external shocks, more collapsing banks (unlikely), war escalations, etc. 

OK I think I understand now. The 19,999 is from last year's allowance in a flexible ISA so you can use it  this tax year and put it back in?
Sorry I thought it was the ISA you opened for this tax year and I was wondering why you put it in to immediately take it back out.

Great system you've managed to work out to maximise the interest. 
My ISA is currently at 4.25% so I think I'll leave it in there for now and revaluate depending on interest rates 😊

pecunianonolet

pookey said:

OK I think I understand now. The 19,999 is from last year's allowance in a flexible ISA so you can use it  this tax year and put it back in?

Indeed, it was tax year 22/23 allowance and we can now "work" with the money in tax year 23/24 and pay it back in by the 5th April 2024 latestand and it doesn't affect this years allowance at all.

We also waited to open some reg savers, First direct for me and Halifax for my partner because that means that we now can secure the high rate, pay cash into them but the maturity will be in tax year 24/25 so we can try to utilise our PSA when rates most likely have decreased on easy access.