A question about savings (ISA and other)

ilsy

Hi all. I am looking at my savings options and had a few questions please. 

ISA - are they cumulative? I.e. every year I can put in the max amount on top of previous years? So first year would be £20k, next year another £20k which means that in 2 years I would have £40k getting tax free interest? 

Savings - every year I can earn £500 interest (higher earner) on top of ISA interest?

If I have £50k in savings is my best option as follows? - I have just put £20k in one isa. In April I can put another £20k in an Isa as well. The remaining £10k in a savings account which would earn less than £500 interest. Thus all savings would get tax free interest. Am I right?

Any input would be much appreciated. 

Woodstok2000

Yes, your ISA assumptions above are correct. 

Premium bonds are also tax free, but theres no guaranteed return.

Make sure you check your ISA interest rates and maximise them. Long term investments may be better in a stocks and shares isa.

For the £10k you may want to look around as you can definitely get more than 5% interest on some accounts (e.g regular savers). You may not be able to get the full amount into one account but it will still increase your interest. Avoiding tax is admirable but £600 taxed is still more than £500 tax free.

El_Torro

Yes, the ISA allowance is cumulative

Having £40k in an ISA and £10k outside of an ISA is probably not a bad place to be in. What gives you the best overall result depends on what banks are offering at the time. Currently ISA providers have good interest rates, this hasn't always been the case. £10k outside of an ISA earning 4% interest will give you £400 a year, close to your tax free allowance. 

Remember that interest rates are currently on their way down, it's unlikely that deals will be as good in a year as they are today. 

Dazed_and_C0nfused

Woodstok2000 said:

Yes, your ISA assumptions above are correct. 

Premium bonds are also tax free, but theres no guaranteed return.

Make sure you check your ISA interest rates and maximise them. Long term investments may be better in a stocks and shares isa.

For the £10k you may want to look around as you can definitely get more than 5% interest on some accounts (e.g regular savers). You may not be able to get the full amount into one account but it will still increase your interest. Avoiding tax is admirable but £600 taxed is still more than £500 tax free.

Unless it hits some cliff edge like having to pay the new Winter Fuel charge!

Woodstok2000

Dazed_and_C0nfused said:

Woodstok2000 said:

Yes, your ISA assumptions above are correct. 

Premium bonds are also tax free, but theres no guaranteed return.

Make sure you check your ISA interest rates and maximise them. Long term investments may be better in a stocks and shares isa.

For the £10k you may want to look around as you can definitely get more than 5% interest on some accounts (e.g regular savers). You may not be able to get the full amount into one account but it will still increase your interest. Avoiding tax is admirable but £600 taxed is still more than £500 tax free.

Unless it hits some cliff edge like having to pay the new Winter Fuel charge!

Good point, although as a higher tax payers they are already probably well over that threshold.  Might be other benefits to consider though...

ilsy

Thank you guys. If I open an ISA today and put the max amount in it, does that count as last year’s allowance (Apr25-Apr26)? And I can put another £20k in from April26 (which would count as Apr26-Apr27 allowance)?

If so do I have to put the next amount in the same ISA? Or can I open another Isa?

Woodstok2000

Any deposits count for the tax year you are in, so you can deposit now for 25/26, and then in April for 26/27.

You can put it in the same isa, or open a new one. You can also transfer your existing balance to a new isa too - just make sure you do transfers via the isa provider as withdrawals and re-deposits can use up your allowance unless it's a flexible able isa that allows this. 

Archerychick

ilsy said:

Thank you guys. If I open an ISA today and put the max amount in it, does that count as last year’s allowance (Apr25-Apr26)? And I can put another £20k in from April26 (which would count as Apr26-Apr27 allowance)?

If so do I have to put the next amount in the same ISA? Or can I open another Isa?

Each tax year begins 6th April, so before 6/4/26 deposits would be this tax year and after would be next tax year.

you can have multiple ISAs

ilsy

https://forums.moneysavingexpert.com/discussion/comment/81836266#Comment_81836266

How can £600 taxed be more than £500 tax free? As a high earner would I not be taxed 40% on the interest? Or have I got it wrong?

Woodstok2000

https://forums.moneysavingexpert.com/discussion/comment/81939600#Comment_81939600

You are only taxed on the portion above your allowance. So if your allowance is £500, and you get £500 in interest, youll keep the full £500.

If you earn £600 in interest, you will keep the £500 allowance, and pay 40% tax on anything over that (£100). So youll keep £560.

esselle_aitch

Jumping on the back of this thread as have similar questions. Once a higher earner has maximised their cash ISA and premium bond limits, where is the next best place to save money to avoid paying too much tax? Is it better to put only the amount that will return just under £500 in interest in a high interest savings account and then leave the rest in a current account earning no interest? Or to put it all in a savings account knowing that some of the interest (over £500) will be taxed? Whilst I understand that even being taxed on anything above £500 is better than getting no interest all all, it then usually results in HMRC flagging that you’ve not paid enough tax and changing your tax code to pay it back that way.