ISA newbie - trying to help father

Catplan

sorethumbs1992 said:

Thanks @Catplan

I've already made the error of withdrawing 5K from an old ISA to transfer to a higher rate savings account without doing my homework.

That doesn’t have to be an error, you’ve moved the 5k to higher paying rate, so it’s earning more, it just been removed from the tax wrapper. If you use your Dads PSA and pay tax on the interest earned it’s still a good move if it pays more than where it came from.

jimjames

sorethumbs1992 said:

Very helpful info thank you all.

So if father is going to be paying tax (as he will be) - and if he can afford to leave his ISA funds alone without needing them the advice would be (on example 100K)

If he's earning then there may be other options better than a cash ISA like paying into a pension but your principle for moving money across is sound.

Catplan said:

sorethumbs1992 said:

Thanks @Catplan

I've already made the error of withdrawing 5K from an old ISA to transfer to a higher rate savings account without doing my homework.

That doesn’t have to be an error, you’ve moved the 5k to higher paying rate, so it’s earning more, it just been removed from the tax wrapper. If you use your Dads PSA and pay tax on the interest earned it’s still a good move if it pays more than where it came from.

For £5k it probably won't make a lot of difference as 5% would give £250 interest which is still within the PSA even for higher rate taxpayers

sorethumbs1992

This may be worth starting a new thread but I'll ask here now anyway first as its kind of linked to previous comments over being taxed on savings.

My father has retired as a farmer and only receives his state pension as income.  He does have a lot of savings (which I'm trying to get the best deals for him so he can receive as much interest as possible)

Based on him earning nothing from employment and getting approx £8000 pension a year (I understand that counts towards his personal tax allowance of £12,570)

1) Can he 'earn' £4,570 of savings interest before hitting the allowance and being taxed

or

2) Does the £5000 savings rate apply (as he is under the personal tax allowance from pension only) meaning he can get the remainder of £4,570 in savings interest tax free PLUS another £5,000 tax free = £9,570 tax free in total from bank account interest

sorethumbs1992

Or it may transpire that whatever he is earning - if it comes in under the tax allowance of £12,570 he will get up to £5,000 of interest tax free on savings regardless and then start paying tax when it goes over the threshold.

Doctor_Who

sorethumbs1992 said:

This may be worth starting a new thread but I'll ask here now anyway first as its kind of linked to previous comments over being taxed on savings.

My father has retired as a farmer and only receives his state pension as income.  He does have a lot of savings (which I'm trying to get the best deals for him so he can receive as much interest as possible)

Based on him earning nothing from employment and getting approx £8000 pension a year (I understand that counts towards his personal tax allowance of £12,570)

1) Can he 'earn' £4,570 of savings interest before hitting the allowance and being taxed

or

2) Does the £5000 savings rate apply (as he is under the personal tax allowance from pension only) meaning he can get the remainder of £4,570 in savings interest tax free PLUS another £5,000 tax free = £9,570 tax free in total from bank account interest

He can use the remainder of his personal allowance, then the £5000 starter savings rate (taxed at 0%), then the £1000 PSA (also taxed at 0%) for his interest.

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

sorethumbs1992

Doctor_Who said:

sorethumbs1992 said:

This may be worth starting a new thread but I'll ask here now anyway first as its kind of linked to previous comments over being taxed on savings.

My father has retired as a farmer and only receives his state pension as income.  He does have a lot of savings (which I'm trying to get the best deals for him so he can receive as much interest as possible)

Based on him earning nothing from employment and getting approx £8000 pension a year (I understand that counts towards his personal tax allowance of £12,570)

1) Can he 'earn' £4,570 of savings interest before hitting the allowance and being taxed

or

2) Does the £5000 savings rate apply (as he is under the personal tax allowance from pension only) meaning he can get the remainder of £4,570 in savings interest tax free PLUS another £5,000 tax free = £9,570 tax free in total from bank account interest

He can use the remainder of his personal allowance, then the £5000 starter savings rate (taxed at 0%), then the £1000 PSA (also taxed at 0%) for his interest.

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

Magic!

I know he will be hit with a large tax bill this year for selling a piece of land but for the future it seems a good idea to keep using the annual ISA allowance especially if he starts getting near that £18,570 limit

badger09

sorethumbs1992 said:

Doctor_Who said:

sorethumbs1992 said:

This may be worth starting a new thread but I'll ask here now anyway first as its kind of linked to previous comments over being taxed on savings.

My father has retired as a farmer and only receives his state pension as income.  He does have a lot of savings (which I'm trying to get the best deals for him so he can receive as much interest as possible)

Based on him earning nothing from employment and getting approx £8000 pension a year (I understand that counts towards his personal tax allowance of £12,570)

1) Can he 'earn' £4,570 of savings interest before hitting the allowance and being taxed

or

2) Does the £5000 savings rate apply (as he is under the personal tax allowance from pension only) meaning he can get the remainder of £4,570 in savings interest tax free PLUS another £5,000 tax free = £9,570 tax free in total from bank account interest

He can use the remainder of his personal allowance, then the £5000 starter savings rate (taxed at 0%), then the £1000 PSA (also taxed at 0%) for his interest.

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

Magic!

I know he will be hit with a large tax bill this year for selling a piece of land but for the future it seems a good idea to keep using the annual ISA allowance especially if he starts getting near that £18,570 limit

It is always a good idea to consider using the annual ISA allowance as it’s ‘use it or lose it’. So even though it may not be immediately beneficial, for some that could change in the future.