Cash ISA + Everyday Saver interest

Firesalen

Hi all,

I need a suggestion, please.
I have the opportunity to save into a flexible Cash Isa at 4.10% interest tax free, however I do not wish to pay any tax so I am fine with saving the limit before I reach £1000 at the end of the tax year.
However, I would have a big amount of money in the current account which I wish to move to another saving account, which would only give a 1.25% gross interest. 

Both combined interest would exceed the tax free £1000 amount in a tax year.

Would this be possible to have two different saving accounts (one ISA and one regular) and not pay any tax although the combination of both interests would exceed the PSA?

Thank you

wiseonesomeofthetime

The PSA does not apply to the ISA product as it's interest is tax free 🤷‍♂️

Only interest earned outside the ISA wrapper is taxable, once the relevant PSA is exhausted.

Why discount the extra interest you'd receive, net of tax, over and above the PSA? 🤔

Doctor_Who

As above. HMRC ignore any interest from ISAs, so you can ignore it when working out your total interest in the tax year and whether you exceed the £1000 PSA (0% tax band).

Firesalen

wiseonesomeofthetime said:

The PSA does not apply to the ISA product as it's interest is tax free 🤷‍♂️

Only interest earned outside the ISA wrapper is taxable, once the relevant PSA is exhausted.

Why discount the extra interest you'd receive, net of tax, over and above the PSA? 🤔

Thank you, very helpful.

So, say I earn £900 interest free in a year from ISA, and £350 gross from another saving account, none will be subject to tax above PSA of £1000 as a basic income earner, correct?

thanks

TiVo_Lad

You complete ignore the £900 interest from the ISA. Only the £350 goes towards the PSA, meaning it would be below the taxable threshold, so there would be no tax to pay, assuming you do not have interest from elsewhere that would also contribute towards your PSA allowance.

Albermarle

The whole idea of putting your money in a Cash ISA is that the interest is not taxable. Be aware though that for otherwise equivalent savings accounts, a cash ISA will pay a lower rate of interest than a non ISA account.
This gap varies and sometimes ( nor really at the moment) it can be better to get the better interest rate and pay the tax.

Bigwheels1111

Why are you so worried about TAX.

You say you can move and get 1.25% AGHHHHHHH. Very little interest.

Get 6% and after 20% Tax = 4.8% near 4 times your 1.25%.

Even if high rate tax payer you would still get 3.6%.

Get the money and pay the tax.

2 years ago you would have been lucky to get £1000 interest on 100k.

Doctor_Who

Firesalen said:

wiseonesomeofthetime said:

The PSA does not apply to the ISA product as it's interest is tax free 🤷‍♂️

Only interest earned outside the ISA wrapper is taxable, once the relevant PSA is exhausted.

Why discount the extra interest you'd receive, net of tax, over and above the PSA? 🤔

Thank you, very helpful.

So, say I earn £900 interest free in a year from ISA, and £350 gross from another saving account, none will be subject to tax above PSA of £1000 as a basic income earner, correct?

thanks

Yes, you may also be eligible for the starter savings rate of £5000 taxed @ 0%, but this depends on the amount of earned income (including pension) you receive - anything above £17570 and you aren't eligible.

More info on the MSE website:

https://www.moneysavingexpert.com/savings/tax-free-savings/

Firesalen

Bigwheels1111 said:

Why are you so worried about TAX.

You say you can move and get 1.25% AGHHHHHHH. Very little interest.

Get 6% and after 20% Tax = 4.8% near 4 times your 1.25%.

Even if high rate tax payer you would still get 3.6%.

Get the money and pay the tax.

2 years ago you would have been lucky to get £1000 interest on 100k.

Thank you. It is because I am new to this, and I was not even sure ISA interest would count towards PSA.

Beddie

Firesalen said:

wiseonesomeofthetime said:

The PSA does not apply to the ISA product as it's interest is tax free 🤷‍♂️

Only interest earned outside the ISA wrapper is taxable, once the relevant PSA is exhausted.

Why discount the extra interest you'd receive, net of tax, over and above the PSA? 🤔

Thank you, very helpful.

So, say I earn £900 interest free in a year from ISA, and £350 gross from another saving account, none will be subject to tax above PSA of £1000 as a basic income earner, correct?

thanks

Yes, you'll be fine there, no tax to pay. Ignore all of the ISA interest as you'll never pay tax on that. 

It is a bit complicated, but maximise your ISA allowance each year if you can and you should be able to avoid the tx.

Newbie_John

Few examples, let's assume you're on £30k salary and pay 20% tax:
1) Your savings are £10k and you put them to a normal saving account with 5% - it generates £500 interests so you pay no tax as you are within £1000 limit.
2) Your savings are £20k and you put them to a normal saving account with 5% - it generates £1000 interests so you pay no tax as you are within £1000 limit.
3) Your savings are £30k and you put them to a normal saving account with 5% - it generates £1500 interests so you pay tax on the £500 above £1000 limit - 20% tax is £100 so you end up with £1400 - equals to 4.67% interest rate in total.
4) Your savings are £50k and you put them to a normal saving account with 5% - it generates £2500 interests so you pay tax on the £1500 above £1000 limit - 20% tax is £300 so you end up with £2200 - equals to 4.4% interest rate in total.