Tax free ISA savings and Income Tax Bands

fearbeag

I fully realise that ISA interest is TAX free but does it / can it take you into a higher rate tax band. For example, if earnings amounted to say, £46,000 and ISA interest amounted to £7,000 whilst the ISA interest is tax free, will it take you into the higher rate Tax band with a lower Personal allowance of just £500 instead of £1000 and a higher 40% tax on the £3000 earnings above the £50K. Do Banks inform HMRC of ISA interest which is tax free or is just taxable interest reported. The reason for my question is because thanks to the forthcoming reforms to pensions  and inheritance tax, I'm  thinking of taking a lump sum from my drawdown pension which I currently don't touch in March, the last month of the financial year  

eskbanker

fearbeag said:

I fully realise that ISA interest is TAX free but does it / can it take you into a higher rate tax band.

No, ISA income is ignored for all tax purposes.

Dazed_and_C0nfused

fearbeag said:

I fully realise that ISA interest is TAX free but does it / can it take you into a higher rate tax band. For example, if earnings amounted to say, £46,000 and ISA interest amounted to £7,000 whilst the ISA interest is tax free, will it take you into the higher rate Tax band with a lower Personal allowance of just £500 instead of £1000 and a higher 40% tax on the £3000 earnings above the £50K. Do Banks inform HMRC of ISA interest which is tax free or is just taxable interest reported. The reason for my question is because thanks to the forthcoming reforms to pensions  and inheritance tax, I'm  thinking of taking a lump sum from my drawdown pension which I currently don't touch in March, the last month of the financial year  

Banks do report both taxable and tax exempt (ISA) interest to HMRC.

But interest from an ISA won't impact your tax liability as it is exempt from tax so providing you adhered to the ISA rules you can simply ignore the ISA interest.

MDMD

Dazed_and_C0nfused said:

fearbeag said:

I fully realise that ISA interest is TAX free but does it / can it take you into a higher rate tax band. For example, if earnings amounted to say, £46,000 and ISA interest amounted to £7,000 whilst the ISA interest is tax free, will it take you into the higher rate Tax band with a lower Personal allowance of just £500 instead of £1000 and a higher 40% tax on the £3000 earnings above the £50K. Do Banks inform HMRC of ISA interest which is tax free or is just taxable interest reported. The reason for my question is because thanks to the forthcoming reforms to pensions  and inheritance tax, I'm  thinking of taking a lump sum from my drawdown pension which I currently don't touch in March, the last month of the financial year  

Banks do report both taxable and tax exempt (ISA) interest to HMRC.

But interest from an ISA won't impact your tax liability as it is exempt from tax so providing you adhered to the ISA rules you can simply ignore the ISA interest.

According to this page they don’t report the interest (as HMRC don’t care). They report the subscriptions (as that’s what HMRC are interested in). So unless the ISA is voided HMRC would never find out.

https://www.gov.uk/guidance/returns-of-information-for-isa-managers

https://www.gov.uk/government/publications/annual-return-spreadsheet-template-for-isa-managers