Fixed rate Cash ISAs - two questions!

anna42hmr

threechoirs said:

@25_Years_On - okay now I'm very confused! I thought people were allowed ONE cash ISA and ONE stocks and shares ISA - but not more? 

You can (at the moment) only pay new money into one cash isa each tax year.  There is nothing to say you cannot fund a different (new) cash isa the following tax year.   As such come 6 april you can open a new isa with a new provider and pay into that, and not therefore push the account over the 85K. 

Indeed if you have not paid into a cash isa this tax year at all, you could open a new one now and pay this years cash isa allowance into the new one and then pay another £20k into another one in april (or the same one if they allow deposits through the terms of the account rather than in the first x number of days). 

you may want to take a look at the guide on here which explains a bit more about isa limits etc

https://www.moneysavingexpert.com/savings/best-cash-isa/#what and this one from which: https://www.which.co.uk/money/savings-and-isas/isas/cash-isas/cash-isa-rules-and-allowances-aR5dQ5B0vmpi

Albermarle

threechoirs said:

@25_Years_On - okay now I'm very confused! I thought people were allowed ONE cash ISA and ONE stocks and shares ISA - but not more? 

@refluxer - I think applies to savings accounts, but not ISAs?

You can have as many ISA's of any type as you like.
The restriction is that you can only add new money to one of each in a tax year.
There is a sub forum for ISA's and a good read through that should bring some clarity.

ISAs & tax-free savings — MoneySavingExpert Forum

I don't really understand how Premium Bonds work?! I know they are tax free, and the funds get pooled into a prize draw (which one has a very slim chance of winning)

If you hold the max amount of £50K, you can expect on average to win a few prizes every month, although the number will fluctuate each month. These prices are typically £25 or £50 or £100. it becomes more rare to win bigger prizes and the chances are VERY slim of winning a big prize.
Over 12 months on average you should earn a similar amount that you would have earnt in an average savings account.

refluxer

threechoirs said:

@refluxer - I think applies to savings accounts, but not ISAs?

No, unfortunately the £100 per parent rule applies to adult cash ISAs opened for 16/17 year-olds, as well as normal (non-ISA) savings accounts...

From https://www.litrg.org.uk/tax-nic/income-tax/working-out-what-taxable/gifts-and-loans

Gifts from parents to children under 18 years old

You are entitled to receive income in your own right no matter what age you are.

If you are:

• under 18 and not married or in a civil partnership, and
• one of your parents (including step-parents) provide you with funds by gift (directly or indirectly), and
• the total funds given to you by that parent produce income of over £100 before tax each year (for example, interest on savings), then

this entire income (not just the excess over £100) will be treated as a ‘parental settlement’ which means it is taxed as your parent’s income, not yours.

If you are under 18 and your grandparents or other family members provide the funds instead, these rules do not apply and they can make any level of gift even if the resulting annual income is over £100.

If you are 16 or 17, the parental settlement rules also apply where your parents make a gift to an ordinary (adult) Individual Savings Account (ISA) in your name and your total income from parental gifts is over £100 before tax each year, even though income arising from ISAs is usually tax-free.

However, if the gift is to a Junior ISA, these gifts do not fall under the parental settlement rules.

refluxer

Also - just for info, 16 & 17 year-olds will no longer be able to open an adult ISA from 6th April this year (once the latest ISA rule changes come into force) so if you did decide to open one for a 16 year-old, it would need to be before then and I think I read it would be subject to the £9k per tax year limit (alongside any Junior ISAs) after 6th April.

ColdIron

threechoirs said:

@25_Years_On - okay now I'm very confused! I thought people were allowed ONE cash ISA and ONE stocks and shares ISA - but not more?

Nope, you can have as many as you like and even open as many as you like. The restriction is that you can only 'subscribe' (put new money) into one of each type per financial year

So you could have one from last year with last years money and another with a different provider for this years money

You could even open and put new money into one with provider A this year, then open 2 more, B and C, this year and split last years money across the two by transferring it. So that would be 3 in all and all 3 opened this year. Only one had new money

It's all changing this April though, you will be able to open and subscribe to more than one each financial year

I bet this has been a revelation to you and causes you to change your plans

elkiedee

Apparently the rules are changing to give more flexibility next tax year (can someone explain this more clearly than me) but currently you can use your ISA allowance within a different ISA with a different provider each year. 

threechoirs

Thank you so much everyone. That is great to know that you can open more than one cash ISA - I had totally misunderstood the rules! 

@refluxer - thank you for the info, that's so helpful. I am still confused though. What if a 16/17 year old opened an adult ISA and left it alone until they were 18? Surely then they are adults and the normal rules and restrictions apply to it? Also, how would anyone ever know about it?! 

refluxer

threechoirs said:

I am still confused though. What if a 16/17 year old opened an adult ISA and left it alone until they were 18? Surely then they are adults and the normal rules and restrictions apply to it? Also, how would anyone ever know about it?! 

Yes - at age 16, your son can currently open an adult ISA and pay up to £20,000 into it before 5th April this year. Note that not all ISA providers allow 16 and 17 year-olds to open adult ISAs, so your choice will be restricted to those that do. 

From 6th April, I believe the ISA allowance for a 16 or 17 year-old will drop from the current £29k (combined adult and junior ISA allowances) to £9k (junior ISA allowance only). I don't know whether a 16/17 year-old would be able to pay that into an existing adult ISA but I would imagine this will be clarified somewhere.

ISA providers report these accounts to HMRC every year which means you have to stick to the rules. I don't know whether HMRC would necessarily be aware of the source of funds if parents were to pay £20k into an adult ISA for their son but if you do this and it earns more than £200 in interest and you don't declare it, then this would presumably be considered to be tax evasion (even if that's not the actual intent).

The £200 limit is across all your son's accounts that contain money gifted by both parents.

threechoirs

@refluxer - thanks again. So have I got this right - technically if my son opened a cash ISA and put 20k into a cash ISA now and 20k on it in April, the interest earned on that 40k would then be my tax liability? 
However, if he turned 18, and then opened a cash ISA, the interest made on this remains his? 

What I still don't understand is how, if a 16/17 year olds holds a cash ISA, and the money is just sitting there generating interest for a couple of years, how does HMRC and the ISA provider determine where and how the parents pay for the tax on that interest?

Thinking about it, surely it's the same with a savings account - a 16/17 year old doesn't declare tax, so how does that work?! If I gift my son 40k (and then I live for 7 years beyond the IHT liability etc), and the amount sits in an account...how would it be determined that the tax liability was mine for a proportion of that, if that makes sense? 

I can see that HMRC wants to stop people swerving tax by putting funds into their kids' names...but I'm curious as to how this actually works in practice? 

refluxer

threechoirs said:

@refluxer - thanks again. So have I got this right - technically if my son opened a cash ISA and put 20k into a cash ISA now and 20k on it in April, the interest earned on that 40k would then be my tax liability? 
However, if he turned 18, and then opened a cash ISA, the interest made on this remains his? 

Yes - if the interest earned from all your son's savings accounts (including the adult ISA) from money given to him by both parents comes to more than £200, then the whole lot has to be declared as part of your savings income for tax purposes.  

Your son would only be able to put £20k in an adult ISA up until 5th April this year - once the rules change from 6th April, the ISA allowance for a 16 or 17 year-old will be £9k each tax year (the current Junior ISA allowance).

threechoirs said:

What I still don't understand is how, if a 16/17 year olds holds a cash ISA, and the money is just sitting there generating interest for a couple of years, how does HMRC and the ISA provider determine where and how the parents pay for the tax on that interest?

Thinking about it, surely it's the same with a savings account - a 16/17 year old doesn't declare tax, so how does that work?! If I gift my son 40k (and then I live for 7 years beyond the IHT liability etc), and the amount sits in an account...how would it be determined that the tax liability was mine for a proportion of that, if that makes sense? 

I can see that HMRC wants to stop people swerving tax by putting funds into their kids' names...but I'm curious as to how this actually works in practice? 

I don't know the ins and outs but I suspect it may be up to you to declare it. There are some very knowledgeable folk here who know a more about tax than I do, so hopefully one of them will be able to advise further.

If your son doesn't currently have a Junior ISA, then a Junior Cash ISA would be a good way of giving him £9k now and £9k after 6th April and this would avoid any tax issues. He'd have no access to the money until he's 18, however.