Martins trick

14wishy

I was reading Martin's info regards Flexible cash ISAs and at the end there is a suggestion to beat the system, or rather play the system, of withdrawing your cash, placing into a high interest, non ISA then paying it back into a cash ISA before the end of the tax year.

Can someone please explain a little more. I was under the impression that once withdrawn tax is paid on any interest earned whilst in the normal savings account anyway. So by then returning the cash to an ISA the tax calculation would have already been done and submitted at the end of the tax year by the institutions.

To say I'm confused is an understatement 🤦🏻

Quote from the article;

"Play the system to max interest and keep ISA benefits...

Here's how:

1. At the start of the new tax year – so from 6 April – withdraw the ISA cash.

2. Put it in (several) high interest accounts (see our Top savings guide for the best deals).

3. Before 5 April the following year just put it back in the ISA to keep your tax protection.

4. Repeat the process again and again."

https://www.moneysavingexpert.com/savings/flexible-isas/ 

slinger2

"Plus remember the personal savings allowance means you can earn up to £1,000 in interest in non-ISA savings accounts each financial year tax-free."

When the money is out of the ISA it is potentially taxable, but (for most basic rate taxpayers) you can get £1,000 interest and not pay tax on it.

Personally I'm well over the £1,000 so this system doesn't work for me; I'd pay 20% tax on any interest earned outside the ISA system.

clairec666

Yes, when you withdraw to a non-ISA you will then pay tax on that interest. But by putting the money back into your ISA you can protect it against future tax. At the moment, keeping the money in a higher-rate non-ISA then deducting tax (if applicable) may earn you more interest than in an ISA, but in future years it may be more beneficial to have the money in an ISA.

Albermarle

Also the 'trick ' assumes you will get a better interest rate outside an ISA, than inside one. This has historically been the case but currently the rates are very close.

clairec666

If you're paying tax for on your interest, it's only really beneficial if you're putting the money in regular savers (5.5% plus)

friolento

Albermarle said:

Also the 'trick ' assumes you will get a better interest rate outside an ISA, than inside one. This has historically been the case but currently the rates are very close.

For HR tax payers, the currently available rates don’t offer any “trick”.

friolento

clairec666 said:

If you're paying tax for on your interest, it's only really beneficial if you're putting the money in regular savers (5.5% plus)

Not for HR tax payers, unless if they already have the one or two top rate accounts that are no longer available, and who can’t fund these accounts already anyway

clairec666

friolento said:

clairec666 said:

If you're paying tax for on your interest, it's only really beneficial if you're putting the money in regular savers (5.5% plus)

Not for HR tax payers, unless if they already have the one or two top rate accounts that are no longer available, and who can’t fund these accounts already anyway

Higher tax brackets make it less of a benefit. As a simple rule (for basic rate tax payers), multiply the regular saver rate by 0.8, compare this to your ISA rate, and if it's higher you'll be better off in the regular saver even after tax is deducted.