Confusion over tax on savings

vikkimcd

Re: declaring tax - I do need to. My bank does not. I have been told this explicitly.

noitsnotme

vikkimcd said:

Re: declaring tax - I do need to. My bank does not. I have been told this explicitly.

The banks don't pay tax on interest on your behalf anymore, but they do tell HMRC how much interest you earn.

FrugaiMacDugal

vikkimcd said:

I should have said - the money was held in a one year fixed rate savings account. It has now matured, and I guess I am going to put it into ISAs. Am I right in thinking I put £20k in before end of tax year, then £20k in after April 5/6? I don't understand the taxing as well - do I add it into the same ISA, or two separate ISAs? And won't I get taxed on the second one as I'll get £1k of interest for each? I have called my bank to ask for advice, but they seem just as confused! People seem to talk about ISAs as a magic way of hiding interest! (I know that is not accurate, but they are sold as the way to go).

Have a read here, might help understand ISAs.

vikkimcd

Thanks, I have read the MSE ISA stuff, I guess I will put £20k in a cash ISA, then another £20k after the new tax year starts. The rest, I don't know. It doesn't quite explain - do I have two separate ISAs or do they get added one on top of the other?

slinger2

Don't make it too complicated. They're just savings accounts with some special rules. You can add your £20k to the existing Cash ISA (if the provider allows that, many fixed rate ISAs don't), you can put it in a different ISA, you can put £10k into one new ISA and £10k into another, etc, etc. The total you can subscribe in the tax year is (currently) £20k which covers all your ISAs.

Dazed_and_C0nfused

vikkimcd said:

I should have said - the money was held in a one year fixed rate savings account. It has now matured, and I guess I am going to put it into ISAs. Am I right in thinking I put £20k in before end of tax year, then £20k in after April 5/6? I don't understand the taxing as well - do I add it into the same ISA, or two separate ISAs? And won't I get taxed on the second one as I'll get £1k of interest for each? I have called my bank to ask for advice, but they seem just as confused! People seem to talk about ISAs as a magic way of hiding interest! (I know that is not accurate, but they are sold as the way to go).

I think you are getting incredibly confused.

The main (only?) benefit of a Cash ISA is that the interest is exempt from tax.

You don't need to tell HMRC about it and won't be taxed on it unless your ISA provider makes a monumental mistake.

Having £1k of TAX EXEMPT interest from a Cash ISA is not going to have any impact whatsoever on the TAX EXEMPT interest you receive from a validly funded second Cash ISA.

You can definitely have a single cash ISA with £40k in it (funded across two or more tax years).  Or two separate cash ISA's with £20k in each (plus the interest earned from the cash ISA).

Some people probably have dozens of cash ISA's.  And providing they have adhered to the funding rules the interest from those cash ISA's will be TAX EXEMPT.

saajan_12

vikkimcd said:

I should have said - the money was held in a one year fixed rate savings account. It has now matured, and I guess I am going to put it into ISAs. Am I right in thinking I put £20k in before end of tax year, then £20k in after April 5/6? I don't understand the taxing as well - do I add it into the same ISA, or two separate ISAs? And won't I get taxed on the second one as I'll get £1k of interest for each? I have called my bank to ask for advice, but they seem just as confused! People seem to talk about ISAs as a magic way of hiding interest! (I know that is not accurate, but they are sold as the way to go).

ISAs can be fixed term or easy access, and the rules work exactly the same as a normal fixed term or easy access account, just that its tax free. So if you put £20k into a fixed term now, then next tax year that one may be closed to new deposits so you may need to open a new ISA for next years £20k. If you put £20k into an easy access now, then you could add further money next year or whenever into the same account. Once money is in an ISA, you can move  the money (including any interest earned) around between ISA accounts, but just remember to ask the provider to move it rather than clicking online yourself. 

The interest inside an ISA doesn't count to your £500 / £1000 interest allowance - that's only for money outside an ISA. So in a few months time if you have ~£40k in ISA(s) the total interest may exceed £1000 but its still tax free. 

saajan_12

vikkimcd said:

Re: declaring tax - I do need to. My bank does not. I have been told this explicitly.

Who told you this and perhaps quote what they said? Usually they would need to declare the tax in NON ISA accounts, as HMRC don't want to handle self declarations for everyone and their dog who has £1.1k in interest. The actual payment of the tax is usually done through adjusting PAYE tax codes on your other income. 

They wouldn't declare ISA interest as its tax free, if that's what they meant. 

t0rt0ise

saajan_12 said:

vikkimcd said:

Re: declaring tax - I do need to. My bank does not. I have been told this explicitly.

Who told you this and perhaps quote what they said? Usually they would need to declare the tax in NON ISA accounts, as HMRC don't want to handle self declarations for everyone and their dog who has £1.1k in interest. The actual payment of the tax is usually done through adjusting PAYE tax codes on your other income. 

They wouldn't declare ISA interest as its tax free, if that's what they meant. 

They will have been told that the bank doesn't *pay* the tax which is true.

vikkimcd

Okay, thank you all so much for your comments. I think I understand it, and have been overthinking it. So I can put £20k in now. I can then put £20k into the same ISA after April 5th 2025, and the interest on these won't be taxed? 
How will I be affected with the rest that I have to put somewhere until I can put it into another ISA in April 2026? If I put this into a normal savings account, will this interest count towards the total yearly allowance?