Cash ISA Tax Question

bfgun

Hypothetically speaking, if I had £1M in a stocks and shares ISA, cashed it in, and transferred the money into a cash ISA product paying 4%, would the subsequent interest of £40K PA be void of tax each year?

sheslookinhot

No tax is due on Cash ISA interest.

bfgun

sheslookinhot said:

No tax is due on Cash ISA interest.

Thought it was too good to be true

Thank you.

bfgun

Hold on, have I misread that?

There is tax due on a Cash ISA or there is No Tax due on a Cash ISA?

Ayr_Rage

All and any ISA interest is completely tax free at the moment.

bfgun

Thank you @sheslookinhot & @Ayr_Rage
Next question, how to get a million in my ISA 😂

Ayr_Rage

bfgun said:

Thank you @sheslookinhot & @Ayr_Rage
Next question, how to get a million in my ISA 😂

I started around 1992, mostly in Investment Trusts, maxed out the limit every tax year, reinvested all income and reached the million mark in late 2021.

I was very conservative with my choice of investments.

bfgun

Ayr_Rage said:

bfgun said:

Thank you @sheslookinhot & @Ayr_Rage
Next question, how to get a million in my ISA 😂

I started around 1992, mostly in Investment Trusts, reinvested all income and reached the million mark in late 2021.

I was very conservative with my choice of investments.

That’s outstanding, and credit to you for taking the decisions you did. 

Unfortunately, I don’t have the same amount of time to reach that maturity level, but I have a couple of potential gems that may get me there. 

Alexland

bfgun said:

Hypothetically speaking, if I had £1M in a stocks and shares ISA, cashed it in, and transferred the money into a cash ISA product paying 4%, would the subsequent interest of £40K PA be void of tax each year?

Just to be clear you would need to ask the new Cash ISA manager to perform an ISA transfer of the S&S ISA you would not move the money yourself else you would be removing it from the ISA wrapper. Provided the money remains in the ISA wrapper then there would be no tax to pay on the future interest earned.

Also consider if just investing in a money market fund (or short dated UK treasury gilts) via the S&S ISA would be easier to get a similar return to cash with only a tiny amount of investment risk but saving the bother of keep moving an ISA around to get the best rates.

Arguably the underlying bonds in a money market fund might have a higher credit rating and provide a better level of protection on £1m than a Cash ISA where FSCS is limited to £85k. Of course your protection on the platform & fund manager is still limited to £85k but they should be running segregated nominee accounts whereas a bank is mixing up Cash ISA deposits into their own business lending which could go wrong as occurred with Northern Rock although their balance sheets should be more resilient now.

Finally if this is some kind of income drawdown strategy remember that interest rates could decline and inflation would most likely erode the spending power of both the cash and the interest earned so there are likely better options.

bfgun

@Alexland Thank you. I never would have considered that, as I assumed I could do it myself if not removing the money from the ISA.

Thank you for explaining this and other matters to consider.