Cash ISA taxed or not using PSA?

redmantra

Hi,

Newbie question.  I'm getting a bit confused over whether I will get taxed on interest above a certain threshold on a Cash ISA.

Scenario - I have opened a cash ISA at 5.1% and will soon deposit £20k.  So by my calculations I will make more than £500 interest over the the year.  As a 40% tax rate payer, does that mean i will get taxed on any interest I make above £500, in which case it would be better putting it in a cash ISA under my wife's name who is a 20% tax payer?

Any advice much appreciated as I used to think Cash ISA interest didn't get taxed.

Thankyou.

Ayr_Rage

ISA interest is TOTALLY FREE OF ANY TAX irrespective of your personal tax rate and does not count towards allowances.

ColdIron

Cash ISAs are free of income tax, it's as simple as that. They are effectively invisible to HMRC.

redmantra

Thanks for quick responses.  I just got a bit confused when reading gov website.

PRAISETHESUN

Your ISA allowance is completely separate from your personal savings allowance. Any ISA money is always completely tax free and also crucially does not count towards your personal savings allowance either. You can still earn your £500/£1000 tax free interest on top of whatever interest you are paid from your ISA savings.