ISA interest at maturity

pipdus

I had an ISA which matured in early April 25. The interest was paid annually not monthly. The provider contacted me to say it was maturing and unless I gave instructions they would simply transfer it to a Matured funds ISA account (with low interest). I understood that and was happy to wait to transfer when I had read all Martins advice on best new cash ISAs. 

Out of the blue, approx £2000 appeared in my current bank account. It was the ISA interest, which had automatically been paid out. 

As it is higher than the £1000 PSA, am I now liable to pay tax on the amount over £1000? The ISA provider didnt warn me they would transfer the interest, but I can only guess there was a setting somewhere saying pay interest to my linked bank account. (I have a small easy access savings account with the same provider and the interest in there is paid monthly and just stays in the account). 

Is there anything I can do about it? Should the ISA provider have warned me they were transferring the interest out of the ISA “wrapper”……

Dazed_and_C0nfused

pipdus said:

I had an ISA which matured in early April 25. The interest was paid annually not monthly. The provider contacted me to say it was maturing and unless I gave instructions they would simply transfer it to a Matured funds ISA account (with low interest). I understood that and was happy to wait to transfer when I had read all Martins advice on best new cash ISAs. 

Out of the blue, approx £2000 appeared in my current bank account. It was the ISA interest, which had automatically been paid out. 

As it is higher than the £1000 PSA, am I now liable to pay tax on the amount over £1000? The ISA provider didnt warn me they would transfer the interest, but I can only guess there was a setting somewhere saying pay interest to my linked bank account. (I have a small easy access savings account with the same provider and the interest in there is paid monthly and just stays in the account). 

Is there anything I can do about it? Should the ISA provider have warned me they were transferring the interest out of the ISA “wrapper”……

Why do you think interest earned in an ISA would be taxable?

Interest you earn on the £2,000 now it is in a non ISA account will be taxable.

What were the terms of the account?  Are you suggesting the provider has changed the terms and not notified you?

Ayr_Rage

You'll have to cast your mind back and try to remember what box you ticked regarding maturity interest.

It is very unlikely the provider has made a mistake.

pipdus

Thanks Dazed n Confused. If the interest had been added to the balance in the ISA, I agree, it would not be taxable. But because they have paid it out of that account, I thought it counts towards the personal allowance of £1000 interest you can earn on savings before you pay tax, so I would need to pay tax on the amount over £1000. Is that not right?

pipdus

Ayr_Rage, looks like you agree I’m liable for tax on the interest now it’s out of the ISA. Because they transferred it to a Matured funds ISA I can’t see the original account. I’m gonna ring them when they’re open but think I’m probably on a hiding to nothing…. 

Peter999_2

You do not have to pay tax on the interest that has landed in your account.    However, any interest that you make from that money is taxable.

slinger2

As noted, there's no tax to pay on the £2,000 since it came from an ISA. However if you now save the £2,000 (outside the ISA system) and get (say) £100 interest, then that £100 would be taxable and you might have to pay tax on that.

flaneurs_lobster

pipdus said:

Ayr_Rage, looks like you agree I’m liable for tax on the interest now it’s out of the ISA. Because they transferred it to a Matured funds ISA I can’t see the original account. I’m gonna ring them when they’re open but think I’m probably on a hiding to nothing…. 

Think that's wrong.

The interest earned in the ISA is tax free. This amount (and any other funds paid out of the ISA) is not taxed. If the funds paid out of the ISA do themselves attract interest then that may well be taxable.

If monies taken out of an ISA were to be immediately subject to taxation then there would be no point in saving in ISAs.

TadleyBaggie

pipdus said:

Ayr_Rage, looks like you agree I’m liable for tax on the interest now it’s out of the ISA. Because they transferred it to a Matured funds ISA I can’t see the original account. I’m gonna ring them when they’re open but think I’m probably on a hiding to nothing…. 

That's not what Ayr_Rage said. Has as been said several times, moving the ISA interest out of the ISA does not make it liable for tax.

PeskyBlunder

If you don't need the interest you could just add it to your new ISA (assuming the funding window is still open) along with any other money you want to put in. You definitely won't need to pay tax on it in any case.

flaneurs_lobster

PeskyBlunder said:

If you don't need the interest you could just add it to your new ISA (assuming the funding window is still open) along with any other money you want to put in. You definitely won't need to pay tax on it in any case.

Two grand of this year's subscription limit used up that may have been earmarked for other new funds tho'.