Interest on ISA account

Walkinthewoods

As an example. If I accrue £50.00 each month on an ISA account and this is paid out into an Easy Access Savings account. Then I will pay tax on the monthly accrued interest gained from the ISA? So my question is what benefit would I gain from keeping my lump sum in the ISA?

Dazed_and_C0nfused

Walkinthewoods said:

As an example. If I accrue £50.00 each month on an ISA account and this is paid out into an Easy Access Savings account. Then I will pay tax on the monthly accrued interest gained from the ISA? So my question is what benefit would I gain from keeping my lump sum in the ISA?

No, interest from a Cash ISA is tax exempt.

Interest you earn from the non ISA account will be taxable income.

Walkinthewoods

So as soon as the interest is paid over into a normal Easy Access account then it is now taxable and bundled together with the rest of the money already held in that account?

Dazed_and_C0nfused

Walkinthewoods said:

So as soon as the interest is paid over into a normal Easy Access account then it is now taxable and bundled together with the rest of the money already held in that account?

No, because savings aren't taxed in the UK.

It is the interest earned that is (outside of an ISA) taxed.

So if you move the interest earned from a Cash ISA to a non ISA account any interest earned by that non cash ISA account will be taxable.  The interest originally earned in the Cash ISA will be tax exempt.

eskbanker

Walkinthewoods said:

As an example. If I accrue £50.00 each month on an ISA account and this is paid out into an Easy Access Savings account. Then I will pay tax on the monthly accrued interest gained from the ISA? So my question is what benefit would I gain from keeping my lump sum in the ISA?

My question is what benefit do you feel you're getting from paying the monthly interest outside the ISA rather than keeping it within the tax wrapper?

Walkinthewoods

I'm still confused! If I have a non ISA account Easy Access Savings account and it has £100 balance. The monthly interest that this account has accrued is added on, let's say £10. Then if £50 is paid in from an ISA account. What amount of the new balance is taxable?

eskbanker

Walkinthewoods said:

I'm still confused! If I have a non ISA account Easy Access Savings account and it has £100 balance. The monthly interest that this account has accrued is added on, let's say £10. Then if £50 is paid in from an ISA account. What amount of the new balance is taxable?

Balances aren't taxable, it's interest earned from them that's taxable, so interest earned from that £160 the following month would be taxable.

Walkinthewoods

Once interest is paid away and paid into an interest bearing account then it becomes taxable?

Dazed_and_C0nfused

Walkinthewoods said:

Once interest is paid away and paid into an interest bearing account then it becomes taxable?

No, interest earned on that interest would be taxable.

For example you have ISA and non ISA accounts both paying 5%. 

You have £12,000 in the ISA and after 1 month you earn £50 in interest.  That £50 is tax exempt.

You move the £50 to your non ISA account.  The balance of your non ISA account at the start of month 2 is now £50.  You earn 21p interest on the non ISA account and that 21p is taxable income.

Walkinthewoods

Thank you. I can now see how that works.