Savings interest and avoiding tax

Spivo46

I have 20k in a standard savings account which pays good interest. Once i get close to earning £1k interest is it ok to then switch to a Cash ISA to avoid paying tax?

Dazed_and_C0nfused

Spivo46 said:

I have 20k in a standard savings account which pays good interest. Once i get close to earning £1k interest is it ok to then switch to a Cash ISA to avoid paying tax?

Is £1k even relevant 🤔

What about your Personal Allowance, has that been used?

And any available savings starter rate band?

But if they aren't a factor and you want to avoid paying tax then a Cash ISA is an option.

HillStreetBlues

Dazed_and_C0nfused said:

Spivo46 said:

I have 20k in a standard savings account which pays good interest. Once i get close to earning £1k interest is it ok to then switch to a Cash ISA to avoid paying tax?

Is £1k even relevant 🤔

What about your Personal Allowance, has that been used?

And any available savings starter rate band?

But if they aren't a factor and you want to avoid paying tax then a Cash ISA is an option.

If a person had income of £12,570 pa, would that mean that person could have interest of up to £6k pa without any tax being paid?

Dazed_and_C0nfused

HillStreetBlues said:

Dazed_and_C0nfused said:

Spivo46 said:

I have 20k in a standard savings account which pays good interest. Once i get close to earning £1k interest is it ok to then switch to a Cash ISA to avoid paying tax?

Is £1k even relevant 🤔

What about your Personal Allowance, has that been used?

And any available savings starter rate band?

But if they aren't a factor and you want to avoid paying tax then a Cash ISA is an option.

If a person had income of £12,570 pa, would that mean that person could have interest of up to £6k pa without any tax being paid?

Providing they hadn't applied for Marriage Allowance yes.

If they had applied it would only be £4,740.

Spivo46

Dazed_and_C0nfused said:

Spivo46 said:

I have 20k in a standard savings account which pays good interest. Once i get close to earning £1k interest is it ok to then switch to a Cash ISA to avoid paying tax?

Is £1k even relevant 🤔

What about your Personal Allowance, has that been used?

And any available savings starter rate band?

But if they aren't a factor and you want to avoid paying tax then a Cash ISA is an option.

Sorry, i didn't make that very clear. I am a basic rate tax payer. I have another £20k to add to the existing £20k. I am trying to achieve the best rates, these seem to be standard saving accounts. So, can i let the interest accumulate to a point close to £1k interest then pull it out before i hit that limit and transfer it to an ISA to avoid the interest being charged?

masonic

Spivo46 said:

Dazed_and_C0nfused said:

Spivo46 said:

I have 20k in a standard savings account which pays good interest. Once i get close to earning £1k interest is it ok to then switch to a Cash ISA to avoid paying tax?

Is £1k even relevant 🤔

What about your Personal Allowance, has that been used?

And any available savings starter rate band?

But if they aren't a factor and you want to avoid paying tax then a Cash ISA is an option.

Sorry, i didn't make that very clear. I am a basic rate tax payer. I have another £20k to add to the existing £20k. I am trying to achieve the best rates, these seem to be standard saving accounts. So, can i let the interest accumulate to a point close to £1k interest then pull it out before i hit that limit and transfer it to an ISA to avoid the interest being charged?

You are allowed to do that, but it's pretty close to the end of the tax year already. If you haven't gone over already, then it doesn't seem like there is much benefit to be had.

The best rates tend to be earned on fixed term accounts, and with those you do not have the luxury of accessing the money when you want. But the net rate is probably better than you'd achieve by your suggested approach.

Spivo46

masonic said:

Spivo46 said:

Dazed_and_C0nfused said:

Spivo46 said:

I have 20k in a standard savings account which pays good interest. Once i get close to earning £1k interest is it ok to then switch to a Cash ISA to avoid paying tax?

Is £1k even relevant 🤔

What about your Personal Allowance, has that been used?

And any available savings starter rate band?

But if they aren't a factor and you want to avoid paying tax then a Cash ISA is an option.

Sorry, i didn't make that very clear. I am a basic rate tax payer. I have another £20k to add to the existing £20k. I am trying to achieve the best rates, these seem to be standard saving accounts. So, can i let the interest accumulate to a point close to £1k interest then pull it out before i hit that limit and transfer it to an ISA to avoid the interest being charged?

You are allowed to do that, but it's pretty close to the end of the tax year already. If you haven't gone over already, then it doesn't seem like there is much benefit to be had.

The best rates tend to be earned on fixed term accounts, and with those you do not have the luxury of accessing the money when you want. But the net rate is probably better than you'd achieve by your suggested approach.

Agreed, but i am now thinking about 24/25 and the £40k. I will probaly but 20k in the ISA and leave the rest in the standard savings at 4.25% 

Dazed_and_C0nfused

Spivo46 said:

masonic said:

Spivo46 said:

Dazed_and_C0nfused said:

Spivo46 said:

I have 20k in a standard savings account which pays good interest. Once i get close to earning £1k interest is it ok to then switch to a Cash ISA to avoid paying tax?

Is £1k even relevant 🤔

What about your Personal Allowance, has that been used?

And any available savings starter rate band?

But if they aren't a factor and you want to avoid paying tax then a Cash ISA is an option.

Sorry, i didn't make that very clear. I am a basic rate tax payer. I have another £20k to add to the existing £20k. I am trying to achieve the best rates, these seem to be standard saving accounts. So, can i let the interest accumulate to a point close to £1k interest then pull it out before i hit that limit and transfer it to an ISA to avoid the interest being charged?

You are allowed to do that, but it's pretty close to the end of the tax year already. If you haven't gone over already, then it doesn't seem like there is much benefit to be had.

The best rates tend to be earned on fixed term accounts, and with those you do not have the luxury of accessing the money when you want. But the net rate is probably better than you'd achieve by your suggested approach.

Agreed, but i am now thinking about 24/25 and the £40k. I will probaly but 20k in the ISA and leave the rest in the standard savings at 4.25% 

Don't forget that for most people avoiding paying tax isn't really that important, it's getting the best overall return that counts.

So once you've used all your £1,000 nil rate band the effective rate after tax on 4.25% is 3.4%.

So if your Cash ISA beats that it makes sense.

beefturnmail

Yes, dont cut your nose to spite your face - go for the best effecrive rate (after tax) regardless of whether that means paying tax.  Probably that will be an ISA once you meet your tax free savings income limit, but possibly not.

boingy

There is not much difference between interest rates on EA Cash ISAs and EA savings accounts so, all else being equal, it would make sense to put it in an ISA from the start, especially if you look ahead a few years to when (hopefully) your savings pot is significantly larger. And, of course, there is nothing stopping you having both ISA and non-ISA savings and a mix of fixed and EA accounts.

jake_jones99

I recommend you also look at money market funds. You can buy one in a stocks and shares ISA. It may seem risky at first if you never had a s&s isa but I can tell you the risk in a money market fund is virtually the same as in a cash isa. That's where i keep all my savings. The advantage is that the money market fund i use matches the BoE interest rate of 5.25% tax free. Also you can pull the money out when you want, and the fluctuations in the value of the fund are minimal, so it's very much similar to a savings account. I recommend you look at the Royal London short term fund:
https://www.ajbell.co.uk/market-research/FUND:B8XYYQ8

I use Aj Bell but you can use whatever platform you prefer, just check what platform fees they have and how much they charge you for holding funds. 
If you didn't interact with this before it may take a bit of time to understand it but trust me it's worthwhile. In my case I've had the tax free top rate for a few years. 
Of course, if the BoE rate drops so will the rate of this fund. So if you want to lock your money for a longer time you might get a better rate in a cash ISA.