RE ISA's and tax year allowances

Sniblet

Hi forum-ites! 

I've got a quick question: about 2.5 months ago I opened an instant access ISA with Paragon for a then reasonable rate with a TX in from Yr 2019/2020 ISA. I've not funded this newly opened ISA with anything else so assuming therefore it's been funded exclusively with Yr 2019/20 allowance, so it doesn't count as a new ISA for this tax year.

Am now thinking of opening another Cash ISA with another provider where I'll be funding with savings via a nominated bank account only (no ISA transfers in). Can this be done without penalty, do you know? I'm thinking of a product with app capability and instant transfers and no restrictions (Paragon has a restriction of 3 withdrawals per year). The idea is that I can use this as instant access to ready cash and it pays (equivalent AER when factoring in my taxpayer rate) more than any of my instant access accounts. 
Does this sound like a decent plan to you?  
I'd love to hear your thoughts on this... 

Many thanks in advance!  

Sniblet

Sniblet

Oh - I should also mention that I'm way over my PSA whichever way I save, hence the idea to use a Cash ISA rather than keep in normal taxed savings acct. 

jimjames

You have £20k per year ISA allowance so if not used since April 2023 you can open another cash ISA and deposit money that is not in an ISA already. It sounds like a flexible ISA such as the one Virgin offer would be suitable for the purpose you've outlined as you can take out and top up during the year.

fabsaver

Sniblet said:

Oh - I should also mention that I'm way over my PSA whichever way I save, hence the idea to use a Cash ISA rather than keep in normal taxed savings acct. 

Ideally you'd want to use your ISA allowance to shelter from tax the highest amount of interest possible. 

That would suggest having your instant access savings outside of the ISA shelter and your higher rate longer term fixed savings within the ISA. You have indicated you already have some instant access accounts so why does the ISA also need to be instant access?

As an example you can currently get 5.9% top fixed rate ISA. If you were to put the full £20k in there you would protect £1,180 of interest from tax. If you were to use your ISA allowance for an instant access account you'd be protecting a much lower amount, depending on the rate and your average balance. Every time you make a withdrawal from the ISA you are losing some of the benefits of having the ISA, at least until you put it back in again (assuming the ISA is flexible).

Doctor_Who

Sniblet said:

Hi forum-ites! 

I've got a quick question: about 2.5 months ago I opened an instant access ISA with Paragon for a then reasonable rate with a TX in from Yr 2019/2020 ISA. I've not funded this newly opened ISA with anything else so assuming therefore it's been funded exclusively with Yr 2019/20 allowance, so it doesn't count as a new ISA for this tax year.

Am now thinking of opening another Cash ISA with another provider where I'll be funding with savings via a nominated bank account only (no ISA transfers in). Can this be done without penalty, do you know? I'm thinking of a product with app capability and instant transfers and no restrictions (Paragon has a restriction of 3 withdrawals per year). The idea is that I can use this as instant access to ready cash and it pays (equivalent AER when factoring in my taxpayer rate) more than any of my instant access accounts. 
Does this sound like a decent plan to you?  
I'd love to hear your thoughts on this... 

Many thanks in advance!  

Sniblet

Transferring a previous ISA tax year's subscription has no affect on the ISA allowance in the current tax year, so you have a full allowance of £20K to add to ISAs this tax year.

As above - a flexible cash ISA sounds like a good plan. Any withdrawals can be replaced in the current tax year and they don't count against the £20K allowance.

Sniblet

fabsaver said:

Sniblet said:

Oh - I should also mention that I'm way over my PSA whichever way I save, hence the idea to use a Cash ISA rather than keep in normal taxed savings acct. 

Ideally you'd want to use your ISA allowance to shelter from tax the highest amount of interest possible. 

That would suggest having your instant access savings outside of the ISA shelter and your higher rate longer term fixed savings within the ISA. You have indicated you already have some instant access accounts so why does the ISA also need to be instant access?

As an example you can currently get 5.9% top fixed rate ISA. If you were to put the full £20k in there you would protect £1,180 of interest from tax. If you were to use your ISA allowance for an instant access account you'd be protecting a much lower amount, depending on the rate and your average balance. Every time you make a withdrawal from the ISA you are losing some of the benefits of having the ISA, at least until you put it back in again (assuming the ISA is flexible).

Thanks @fabsave - you make a very valid point especially if I was looking to add to my savings pot, but I only want an ISA in which I can move money easily with no penalties, which acts as an alternative to the current instant access accounts I hold, because this year I'm sadly not in a position to save anything so would be funding the ISA from current instant access accounts whose interest would be taxed. As such the ISA would be doing the job of less of an overall shelter, more of a mitigator of tax payable. 

As such, I believe that this might be the most expedient way to save on any interest tax liaibility come year end.