Spending your ISA interest

sherbie28

I understand that ISA interest is tax free. But what happens if I wanted to keep the £20,000 in the ISA but spend the interest? So, for arguments sake if it was 5% on year one anniversary I have £1000 interest which is added to the ISA account automatically. If I sent the £1000 to my current account as soon as it hits my current account it's liable for tax the same as if it was in a normal savings account? I have asked this question before but I don't think I've posed it very well as I'm not confident with the answers I received as I'm sure I read a post on the GOV.UK that it will be taxed if interest is sent to your current account. Thanks in advance

Devongardener

No it won’t be taxed if transferred to a current account,  but any more interest it then earns in any non isa account will be taxable.

sherbie28

Thank you. The current account doesn't earn any interest so if I transfer £1000 to the current account and then bought a tv or a sofa etc that's fine?

slinger2

That's right. No income tax to pay on the £1000. There nothing special about the £1000 being interest. If you withdraw £500 or £5000 from your ISA there's still no tax to pay.

FrugaiMacDugal

Why withdraw it, just leave it to earn more interest.

sherbie28

I definitely will leave it there but in the event of wanting to use some of it I was wondering how it works. 

Isarulesaretoocomplex

sherbie28 said:

I definitely will leave it there but in the event of wanting to use some of it I was wondering how it works. 

Even if your account paid interest and you are a basic rate taxpayer you have a personal savers allowance of £1000 from any interest out of your tax wrapping isa

slinger2

Isarulesaretoocomplex said:

sherbie28 said:

I definitely will leave it there but in the event of wanting to use some of it I was wondering how it works. 

Even if your account paid interest and you are a basic rate taxpayer you have a personal savers allowance of £1000 from any interest out of your tax wrapping isa

True but many on here are well over the £1000 allowance and thus paying 20% tax or even more. With current interest you "only" need about £20k in savings to get £1k interest.

poseidon1

sherbie28 said:

I definitely will leave it there but in the event of wanting to use some of it I was wondering how it works. 

Just so you are aware, there are a number of retirees ( I being one) who receive ISA interest on a monthly basis to spend on day to outgoings precisely because it is entirely tax free non reportable income. 

 Flexible ISAs allows us to go a stage further and return the interest we spent in the year so that at the start of the next ISA year we have an increased amount to generate a new lot of tax free income, in addition to availing ourselves of a new £20k ISA allowance to 'rinse and repeat' going forward.  A somewhat satisfyingly tax free virtuous circle. 

Of course this is all predicated on have lumps of cash  or near cash elsewhere, sitting ready and waiting to feed the ISA machine.

Isarulesaretoocomplex

poseidon1 said:

sherbie28 said:

I definitely will leave it there but in the event of wanting to use some of it I was wondering how it works. 

Just so you are aware, there are a number of retirees ( I being one) who receive ISA interest on a monthly basis to spend on day to outgoings precisely because it is entirely tax free non reportable income. 

 Flexible ISAs allows us to go a stage further and return the interest we spent in the year so that at the start of the next ISA year we have an increased amount to generate a new lot of tax free income, in addition to availing ourselves of a new £20k ISA allowance to 'rinse and repeat' going forward.  A somewhat satisfyingly tax free virtuous circle. 

Of course this is all predicated on have lumps of cash  or near cash elsewhere, sitting ready and waiting to feed the ISA machine.

Make use of this year's isas this government has its eyes on isas expect it to be reduced in the autumn budget to around 4k is the word on the street. Apologies if it sounds political 

sherbie28

poseidon1 said:

sherbie28 said:

I definitely will leave it there but in the event of wanting to use some of it I was wondering how it works. 

Just so you are aware, there are a number of retirees ( I being one) who receive ISA interest on a monthly basis to spend on day to outgoings precisely because it is entirely tax free non reportable income. 

 Flexible ISAs allows us to go a stage further and return the interest we spent in the year so that at the start of the next ISA year we have an increased amount to generate a new lot of tax free income, in addition to availing ourselves of a new £20k ISA allowance to 'rinse and repeat' going forward.  A somewhat satisfyingly tax free virtuous circle. 

Of course this is all predicated on have lumps of cash  or near cash elsewhere, sitting ready and waiting to feed the ISA machine.

I did wonder if this was a 'thing' that you could do but wasn't sure. It's all new to me and my parents.
 I'm trying to help them navigate an unexpected inheritance, their only income is their state pensions. Is there a good time of year to open an ISA, are rates better at a certain time? If the government does as you mentioned lower it to £4000 then I need to help them choose sooner rather than later.