ISA interest tax free?

refluxer

jimjames said:

refluxer said:

AstonSmith said:

refluxer said:

IIRC, if you want a Barclays fixed rate cash ISA to pay interest paid monthly, then having it paid away to an external account is the only option. This is the reason why I selected to have the interest paid annually, so it remains within the ISA.

As an interesting aside, I noticed that when I transferred my ISA away from Barclays (which was monthly payout), the new provider suggested I had more allowance available than I paid in. e.g. £10000 paid in that year, £500 paid in interest, remaining allowance = £10500.

So it appears that you could transfer those monthly Barclays interests right back into the ISA...?

I would guess that this is a mistake and could be something to do with the flexible nature of the Barclays ISA but monthly interest paid away to the current account shouldn't count as a withdrawal, so paying it back into the ISA would actually count again towards your ISA allowance.

My understanding is that for a flexible ISA interest taken out does count as a withdrawal so you can add it back in if removed during the tax year and that transfer/replacement balances show this amount.

Ah, OK. I'd thought that wouldn't apply if the bank pays it out (as opposed to you manually withdrawing it) but that was just a cautious presumption - I've never made use of a flexible ISA allowance in this way, so it wasn't based on any personal experience. Thanks for the info.

slinger2

Not sure about the situation when the interest is paid away, but of course when you make a withdrawal you don't specify whether it's interest or something else. In fact the regulation (5DDB) says what money is deemed to be withdrawn and replaced. Or at least it claims to, although it's confusing to me.

Thankfully in most cases it doesn't matter. However if the cash ISA has both old and new money and interest going in too, then it can get very complicated as to what money is deemed to be withdrawn and replaced.

jimjames

slinger2 said:

Thankfully in most cases it doesn't matter. However if the cash ISA has both old and new money and interest going in too, then it can get very complicated as to what money is deemed to be withdrawn and replaced.

I guess the way the rules are written means it isn't complicated because you can replace everything that is withdrawn during that tax year whether it is new or old money.