Nervous about using flexible ISA to maximise savings interest

CeliaSeas

Hello, I’ve been a self employed sole trader for approx 20 years. In that time I have been frugal and paid any spare funds into cash ISAs.

I am now looking to wind up my business (since the pandemic it pays very little) and live off of the ISA interest.

I want to put some of my ISA funds into a flex ISA and then withdraw (will replace in same tax yr so as not to lose allowance) so that I can ‘go big’ on regular savers and generally squeeze as much interest as possible out of my savings. BUT I’m worried that the jump from previously declaring interest of £200-£300 per year to declaring £3k or more per year will flag me up to HMRC. That they might contact me, querying things and generally making me feel stressed.

I am committed to keeping detailed records so that I’ll have the info ready for HMRC, but am I worrying about nothing? Can anyone reassure me or share their own experience please.

Thanks in advance

Albermarle

Are all your funds in cash savings ? Have you any investments/pension provision?

masonic

I don't think it is all that unusual for savings interest to vary quite a lot from year to year. Mine will be going down dramatically from this tax year. It went up dramatically in the early 2020s. I would think HMRC have better things to do than pondering the reasons behind people declaring more savings income.

Having the records is the main thing. If you have them, then you can provide them if needed, but I very much doubt that will happen.

In any case, HMRC receives annual returns from savings institutions, so will have some independent verification for what you are declaring.

—

On the subject of using flexibly withdrawn ISA funds to feed regular savers, most accounts have a 12 month term, so how exactly are you planning to make that work?

CeliaSeas

https://forums.moneysavingexpert.com/discussion/comment/81958981#Comment_81958981

No pension or investments, I know I should have but I feel it's too late in the day for investing now.

CeliaSeas

https://forums.moneysavingexpert.com/discussion/comment/81958982#Comment_81958982

Thank you, that does make sense.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81958992#Comment_81958992

Maybe if you are over 70, that could be the case.

CeliaSeas

https://forums.moneysavingexpert.com/discussion/comment/81959003#Comment_81959003

Thank you, I'm 60, I still might open an S&S ISA now that I have more free time to look into it but really I need an income now from my savings so maximising the interest seems like the best option.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81959014#Comment_81959014

Understandable, especially as cash interest rates are still beating inflation with no risk. However no harm in having a proportion in long term investments whilst you are still have time on your side.

As another posters said , I would be surprised your increase in interest would spark off some investigation. Especially as it is totally legal . Just keep good records.

EthicsGradient

Since it sounds like your taxable income will just be that from from the regular savers at around £3k per year, it might be worth looking at putting £2,880 a year into a SIPP, investing it in a short term money market fund (which pays about the same as a savings account, and is ultra-low risk), getting the £720 tax relief, and then, once your sole trading business is ended and your taxable income is just that from the regular savers, you can withdraw it from the SIPP - ie £3,600 (plus whatever the money market fund has added as effective interest). And then you put £2,880 back in again (you can wait until just before the end of the tax year), get the £720 tax relief again, and repeat.

You're allowed to do this if you don't exceed £7,500 per year - see

Recycling of tax-free cash & pension recycling rules - Royal London for advisers

(more than that, and HMRC can regard it as "recycling", but the basic £3,600 gross per year that you can put into a SIPP, even if you're not earning, is fine). This gives you (when you don't have other earnings) the £720 tax relief each year.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6663733/nervous-about-using-flexible-isa-to-maximise-savings-interest

Have they opened an investigation into any of the returns you have filed over the past 20 years?

Once your business ends why would you be filing returns for subsequent tax years if your only taxable income is a few thousand £ of untaxed interest, covered by your Personal Allowance 🤔

You should 100% consider the points @EthicsGradient has made about a pension. You have been missing out on a significant amount of free money but can at least stem that now.

CeliaSeas

https://forums.moneysavingexpert.com/discussion/comment/81959019#Comment_81959019

Thank you, I'm relived that I've not been too daft for not investing so far! Although I do plan to, should I be lucky enough to inherit.