Flexible Isa to reduce tax on savings which may, with interest rates 'soaring', become taxable.

Freebird53

Good morning,

Things appear to be getting slightly more complex.

I have some savings, which as stated, with interest rates rising, may soon make these savings liable to be taxed.

I have also become aware of 'Flexible' ISA's. And after reading an article on the main site, https://www.moneysavingexpert.com/savings/flexible-isas/

I am wondering:-

Could I set up a Flexible ISA now (or at any time before April 2024), leave my savings where they already are, in an account attracting a higher rate of interest, and then transfer a portion of those savings into the Flexible ISA before 5th April 2024 to make those savings tax exempt?

Thanks.

frugalmacdugal

Hi,

savings once in ISA will be non taxable, but you will still have to declare interest earned prior to transfer into ISA.

boingy

Yes, but any interest earned up to that point still counts as taxable. Once the money is inside the ISA interest is then tax free so you need to do a few calculations and time your ISA entry point if you want to maximise your interest without paying tax. Be sure to check that the ISA is paying more than your non-ISA rate minus tax, because you might actually be better off paying some tax.
Also, if you open an ISA now you will probably have to put in some money right away, although some banks accept deposits of just £1. A better plan is to wait until you are ready to put in money and open an ISA then, because the best deal is bound to be different at that point!

Doctor_Who

Freebird53 said:

Good morning,

Things appear to be getting slightly more complex.

I have some savings, which as stated, with interest rates rising, may soon make these savings liable to be taxed.

I have also become aware of 'Flexible' ISA's. And after reading an article on the main site, https://www.moneysavingexpert.com/savings/flexible-isas/

I am wondering:-

Could I set up a Flexible ISA now (or at any time before April 2024), leave my savings where they already are, in an account attracting a higher rate of interest, and then transfer a portion of those savings into the Flexible ISA before 5th April 2024 to make those savings tax exempt?

Thanks.

Any interest earned once in the ISA is free of tax, but as frugalmacdugal said, you are still liable to tax on the interest earned in the non-ISA account upto the point you move the money to the ISA. Moving the money into an ISA doesn't allow the interest earned already to be free of tax. 

Freebird53

Thankyou for the replies,

All has become clear..(er)

Freebird53

After some further calculations, the benefits of an ISA are not neglibable (and obviously increase as rate rises), but for me at least, not worth all the extra hassle of setting up and managing another account.

I remain, fimly caught in the trap. Perhaps some kind soul will increase one of the savings allowances?

jimjames

Freebird53 said:

After some further calculations, the benefits of an ISA are not neglibable (and obviously increase as rate rises), but for me at least, not worth all the extra hassle of setting up and managing another account.

I remain, fimly caught in the trap. Perhaps some kind soul will increase one of the savings allowances?

Very unlikely allowances would be increased when ISAs exist for exactly that purpose, far more likely that allowance removed completely.

An ISA isn't a hassle to open at all and if you're already chasing the best rates then just include that in your requirements. 

boingy

jimjames said:
 far more likely that allowance removed completely.

I've been pondering whether that might happen, especially as we're probably heading for a new govt next year That govt will be looking to boost their income and what better way to do it than to fiddle with savings rules and tax allowances and the like - stuff that many people don't really understand.

frugalmacdugal

Hi,

Freebird53 said:

After some further calculations, the benefits of an ISA are not neglibable (and obviously increase as rate rises), but for me at least, not worth all the extra hassle of setting up and managing another account.

I remain, fimly caught in the trap. Perhaps some kind soul will increase one of the savings allowances?

there are still 9 months of this tax year to run, so if you bunged the 20K ISA allowance in now at say 4%, that would be £600 of interest you wouldn't have to declare, a potential tax saving of £120.

Worth the extra hassle?

Catplan

I’d open and fund now tbh, if you go for a flexible cash isa you can withdraw and replace, you can usually transfer if a better rate becomes available.

Freebird53

I appreciate the comments, but in perspective, i'd gain more by switching my current account, something else which is too much hassle! If ISA rates were comparable to non-ISA rates.....

Either way, i'll be able to use my personal tax allowance next year...