ISA higher rate allowance

benson2221

Hi

I understand the allowance for ISA interest paid changes if you are in the 40% tax rate bracket. Is this checked with your latest p60 or is it your responsibility to check? I am always very close to the 40% bracket with my overtime. Sometimes I go over, sometimes I am just below 50k. I have 20k I want to put in an ISA but wanted to clarify what would be best to do if I go over into the 40% bracket or would the interest paid be reflected as to what I have earned by the bank I go with?

Thanks in advance 

Zuzi

What do you mean, in what way will the interest change because one is a higher rate payer? Interest gained in an ISA is tax-free, it should not matter which rate you pay on your other income.

SacredStephan

benson2221 said:

Hi

I understand the allowance for ISA interest paid changes if you are in the 40% tax rate bracket. 

Interest earned in an ISA is always tax-free, you don't need to report it to HMRC and it doesn't form part of your taxable income.

Ayr_Rage

benson2221 said:

Hi

I understand the allowance for ISA interest paid changes if you are in the 40% tax rate bracket. Is this checked with your latest p60 or is it your responsibility to check? I am always very close to the 40% bracket with my overtime. Sometimes I go over, sometimes I am just below 50k. I have 20k I want to put in an ISA but wanted to clarify what would be best to do if I go over into the 40% bracket or would the interest paid be reflected as to what I have earned by the bank I go with?

Thanks in advance 

You misunderstand.

Personal income and ISA interest are in no way connected.

Even the richest tax resident gets the same amount of interest as you if you both have the same ISA product.

Albermarle

The only reason to save in a cash ISA, is so you do not have to pay any tax on the interest in any circumstances.

If it were an ordinary ( non ISA) savings account it would be different.

jimjames

benson2221 said:

I understand the allowance for ISA interest paid changes if you are in the 40% tax rate bracket. 

Sounds like you've got confused about the interest payments on savings accounts you can get without paying tax of £500 or £1000 depending on your income. ISAs are completely separate to that and totally tax free

benson2221

Thanks for the replies. So there is not a £1000 limit on interest earned in an ISA for someone who is in the 40% tax bracket?

masonic

benson2221 said:

Thanks for the replies. So there is not a £1000 limit on interest earned in an ISA for someone who is in the 40% tax bracket?

No, there is no limit to the amount of tax free interest you can earn within an ISA. Someone in the 40% tax bracket can earn £500 interest tax free outside of an ISA before starting to pay tax on their savings interest at 40% (or £1000 for basic rate taxpayers).

benson2221

Thanks for confirming that. I've obviously got confused with the limit inside and outside of the ISA. 

Thanks to all

Albermarle

benson2221 said:

Thanks for confirming that. I've obviously got confused with the limit inside and outside of the ISA. 

Thanks to all

I think you have got confused about ISA's altogether. The whole idea of an ISA is that any interest generated is completely non taxable ( with no limit for anybody).
The only restriction is how much you can add to one each tax year.