Tax status of interest withdrawn from Cash ISA account

Froggy17

I intend to use the interest earned from my cash ISA as income. Is the amount of interest withdrawn from a Cash ISA account classed as taxable interest (i.e falls within my tax free interest allowance) once withdrawn or can I count it out?

eskbanker

Interest withdrawn from an ISA isn't taxable income at the point of withdrawal, but any interest you subsequently earn on it once it's in your non-ISA account would be liable to taxation.

mebu60

Interest from an ISA is ignored completely for income tax purposes.

grandma_j

so, if i withdraw it from the ISA and then spend it immediately will it not be liable for tax?

jimjames

grandma_j said:

so, if i withdraw it from the ISA and then spend it immediately will it not be liable for tax?

That's correct. The whole point of ISAs is that they are tax free. Even if you don't spend it immediately you will still have no liability for tax on that interest. 

Qyburn

Exactly.    

grandma_j

eskbanker said:

Interest withdrawn from an ISA isn't taxable income at the point of withdrawal, but any interest you subsequently earn on it once it's in your non-ISA account would be liable to taxation.

so, if i earn, say 5% interest on the capital then withdraw that interest into a bank account will it then be taxed at 20%, or if i then use it  to pay a bill etc how will HMRC know ? i am confused!

jimjames

grandma_j said:

eskbanker said:

Interest withdrawn from an ISA isn't taxable income at the point of withdrawal, but any interest you subsequently earn on it once it's in your non-ISA account would be liable to taxation.

so, if i earn, say 5% interest on the capital then withdraw that interest into a bank account will it then be taxed at 20%, or if i then use it  to pay a bill etc how will HMRC know ? i am confused!

I'm not sure we can be any clearer. There is NO tax on interest from ISAs so I'm not sure where any confusion could come from!

Ayr_Rage

The interest withdrawn from an ISA is NEVER subject to tax.

@grandma_j once reinvested outside an ISA then any SUBSEQUENT interest on that sum forms part of your taxable income.

Dazed_and_C0nfused

grandma_j said:

eskbanker said:

Interest withdrawn from an ISA isn't taxable income at the point of withdrawal, but any interest you subsequently earn on it once it's in your non-ISA account would be liable to taxation.

so, if i earn, say 5% interest on the capital then withdraw that interest into a bank account will it then be taxed at 20%, or if i then use it  to pay a bill etc how will HMRC know ? i am confused!

What is confusing you?

Interest earned in an ISA is exempt from tax.

If you take the interest out of an ISA there is no tax to pay.  If you pay a bill with it why would HMRC need to know?

If you put the interest into a non ISA account and you earn interest in a non ISA account then that interest is taxable.

So say £20k in ISA earns £1,000 interest.  The £1,000 is exempt from tax.

You take that £1,000 out of the ISA and put it into a non ISA account and that £1,000 earns £50 in interest.  The £50 is taxable income.