Cash ISA Queries

UTD1992

I have several queries relating to Cash ISAs that I'm hoping someone can help me with. I've been reading online about them today and some of it's very confusing.

• If I open a Cash ISA investing £20K, will I ever have to pay tax on this even when the interest goes over £1K annually?
• Can I add another £20K to this ISA next year, and not pay tax? I.E. I will have £40K invested and about £1500 in interest at the end of the 25/26 tax year. Will that be tax free?
• The only account I have is a current account generating zero interest and am looking at investing approximately £50k of my savings with as little hassle/admin as possible. Would doing the above be more beneficial than opening up a savings account and dealing with the tax implications?

As you can probably tell, all of this is completely new to me, so any help would be greatly appreciated.

eskbanker

UTD1992 said:

• If I open a Cash ISA investing £20K, will I ever have to pay tax on this even when the interest goes over £1K annually?

No tax while the money remains within the ISA.

UTD1992 said:

• Can I add another £20K to this ISA next year, and not pay tax? I.E. I will have £40K invested and about £1500 in interest at the end of the 25/26 tax year. Will that be tax free?

Yes to both, in principle at least - some ISAs (typically fixed-term ones) won't allow funding beyond a short initial window, but if the first one isn't open for new contributions, you could pay into another one.

UTD1992 said:

• The only account I have is a current account generating zero interest and am looking at investing approximately £50k of my savings with as little hassle/admin as possible. Would doing the above be more beneficial than opening up a savings account and dealing with the tax implications?

You should aim to maximise net return, which may be from ISAs or from taxable accounts - you have allowances and nil-rate bands to offset the latter so ISAs aren't necessarily the right answer.  A combination may be best, but it'll depend on your tax situation, etc:

https://www.moneysavingexpert.com/savings/tax-free-savings/

UTD1992

Thanks for the quick reply. Another question - if I were to withdraw money from the ISA into my current account, could that be taxed?

eskbanker

UTD1992 said:

Thanks for the quick reply. Another question - if I were to withdraw money from the ISA into my current account, could that be taxed?

There'd be no tax arising from the interest paid while within the ISA, but if interest is subsequently earned, while outside the ISA, then that would be taxable.

UTD1992

Thanks again for your help. I'm looking into the Virgin Money Defined Access Cash E-ISA. Am I right in saying that my money would be 100% protected with them under the FSCS?

eskbanker

UTD1992 said:

Thanks again for your help. I'm looking into the Virgin Money Defined Access Cash E-ISA. Am I right in saying that my money would be 100% protected with them under the FSCS?

Yes, but always better to check via the horse's mouth rather than taking anonymous people's word for it!

https://www.fscs.org.uk/check/check-your-money-is-protected/

UTD1992

Thanks again! This appears to be much more straightforward than I originally feared. In theory I could add £20K to the same ISA every year and never worry about tax! I realise that wouldn't optimise my interest, but it's a nice option to have and at least get me started. I realise you are only protected up to £85K by the one provider, but I don't think I will have to worry about that problem!

badger09

UTD1992 said:

Thanks again! This appears to be much more straightforward than I originally feared. In theory I could add £20K to the same ISA every year and never worry about tax! I realise that wouldn't optimise my interest, but it's a nice option to have and at least get me started. I realise you are only protected up to £85K by the one provider, but I don't think I will have to worry about that problem!

In theory you could just add £20k, or whatever the current annual ISA allowance may be, to that same ISA every year. However, it’s a good idea to keep an eye on ISA (& non ISA) rates as other providers might offer a higher rate. 

UTD1992

I have another question I'm hoping someone can answer for me. I decided to open a savings account alongside my cash ISA for the year. If I'm allowed a personal savings allowance of £1K per year, can I use this allowance all in the last 5 months of the tax year? i.e. Open a savings account now with £40K at 5% to receive £833 interest by the end of March. Would this all be tax free?

I would then move £20K to my cash ISA on 6th April to allow me to earn £1k in tax free interest for the next tax year from the £20K in my savings account. Does that sound like a logical plan?

Dazed_and_C0nfused

UTD1992 said:

I have another question I'm hoping someone can answer for me. I decided to open a savings account alongside my cash ISA for the year. If I'm allowed a personal savings allowance of £1K per year, can I use this allowance all in the last 5 months of the tax year? i.e. Open a savings account now with £40K at 5% to receive £833 interest by the end of March. Would this all be tax free?

I would then move £20K to my cash ISA on 6th April to allow me to earn £1k in tax free interest for the next tax year from the £20K in my savings account. Does that sound like a logical plan?

No.  Interest from ISA's is tax free/tax exempt, interest from a normal account would be taxable income.

Although, depending on what other taxable income you have, up to £18,570 taxable interest can be received without actually having any tax to pay.

This is achieved by using the Personal Allowance, savings starter rate band (0% tax rate) and savings nil rate band (also 0% tax rate).

But if you have non savings non dividend income of at least £17,570 then just the first £1,000 is taxed at 0%.

Albermarle

If you read through this forum, you will see lots of similar questions and answers about ISAs.
It is a good way of keeping up to speed.