ISA's and new ISA's

cagedanimal73

Hello everyone, I am just after a bit of advice please….

Back last year I put £20k into a 1Yr Fixed Term ISA which matures shortly. My plan was to always let it expire and then use it in a new 1 or 2 or year ISA to cicrum-navigate the PSA reduction to £12k in April 2027, thus earning more interest on £20k for longer.

Being new to ISAs I just thought i'd just let it expire, move the £20k+interest to my bank account and then move £20k to a new ISA, put the earned interest back into my savings account.

However I have just googled that i can transfer my existing ISA to a new ISA and it stays tax-free AND by doing that it also DOES NOT count towards my currently unused 2026/27 PSA. Is this true?

At the moment I have that £20k in that 25/26 ISA, £20k in a 1-Year Fixed SA (also about to expire) and another £10k sat in Zopa Access Account (again about to expire).

If the above is true then I could essentially do the transfer and use £20k of that £30k currently in savings accounts in a new ISA, then another £12k in another new ISA in April 2027 and so-on and so-on yearly, essentially ending up with multiple ISAs all earning tax-free interest?

Does all this sound correct? And would anyone agree that it would be the best route to put most of my savings into a tax-free interest environment?

Thanks in advance.

Vitor

Yes, you've understood correctly, although you're confusing the Personal Savings Allowance (PSA) with the annual ISA allowance.

When your ISA matures, arrange a formal transfer through the new provider. The entire balance, including interest, remains tax-free and doesn't count towards your annual ISA allowance. Don't withdraw it into your bank account first.

From April 2027, the Cash ISA annual limit falls to £12k for under-65s, remaining £20k for those aged 65 and over.

You can accumulate ISAs indefinitely, with all interest remaining tax-free.

RobfromCornwall

https://www.moneysavingexpert.com/savings/best-cash-isa/#what

An ISA is just a savings account where tax is not due on interest earned. (For now) everyone has a 20k a year allowance. They don’t ‘expire’, but it seems you have an account which matures after a year, ie the interest rate is fixed for the first year. The money is still ISA money and you should not withdraw it from the ISA wrapper unless you plan to spend it, as you will lose the tax free status of the money.

Whether it makes sense to have savings in ISAs or not depends on the relative interest rates and your tax status. Please to read the guide linked above. It might also be wise to stop thinking about having an ISA each year. You have a new allowance each financial year, but that money can be in the same or different ISA accounts.

retiredbanker1

''Being new to ISAs I just thought i'd just let it expire, move the £20k+interest to my bank account and then move £20k to a new ISA, put the earned interest back into my savings account.''

You certainly do NOT want to do this.

Keep the money in the ISA and arrange transfers for any new ISA's. Why would you want to put ISA interest (tax free) into a savings account where it would be taxed?

tom192

https://forums.moneysavingexpert.com/discussion/6687981/isas-and-new-isas

Definitely do not touch anything until you have read all the guides and then post on here what you plan to do, you have got yourself muddled and doing it wrong you will make a mess and not be able to reverse it.

cagedanimal73

https://forums.moneysavingexpert.com/discussion/comment/82179739#Comment_82179739

In answer to your question, I was trying to work out what to do with the ISA interest, if I could only use the £20k PSA for a new ISA. So I was going to put it into an EA Saver to either leave it or use it. Not quite understanding why it would be taxed though other than it not being in a tax-free environment any longer?

As I said, im new to this savings game!

I am also still a little confused about any ISA transfer, will my new ISA take the ISA-interest with it or ask me to move that somewhere else?

tom192

https://forums.moneysavingexpert.com/discussion/comment/82179779#Comment_82179779

The interest added within the ISA wrapper, it doesn't matter if it goes over the 20k, you can't put more than 20k in but the interest earned doesn't count to this.

You are confusing PSA (£1k standard tax payer) and ISA (20k, changes in April 27) allowance they are two different things.

Tax on savings is only ever on the interest earned, your original money is never taxed.

ISA transfers can usually be either a partial amount or for the full amount in the account, not all providers allow partial. Once the fixed rate ends all the money is available to do something with interest and original capital but you must do a transfer to keep the tax free wrapper.

Op I am pretty sure ML has a video on the ISA page on MSE where he uses the chocolate cake analogy probably best watching that to see if that helps

cagedanimal73

Oh god, yes sorry @tom192 (and everyone else seeing this post!) you are right I am getting confused about ISA and PSA 🤦‍♂️

PSA - my tax-free £1000 allowance on savings.

ISA - my tax-free savings upto £20k

@retiredbanker1 I note my answer to your reply now makes little to no sense, sorry bout that.

Bigwheels1111

It is possible to have around 1 million in an isa or multiple isa’s from when they first started until now. All tax free. As PSA is not relevant.

Tax is irrelevant, only the maximum you can add each year ie 20k until April 27 when it’s 12k.

I have 5 isa’s with 100k in them.

Decide how long you want to fix for and transfer them into one at the best rate, depending on maturity dates.

Mine all mature in October & early November 27, just in time to buy my new house, can’t wait.

Re PSA, I’ve got a 4k tax bill this year and from 2027 it will be upwards of 4.8k thanks to the 22% tax.

https://moneyfactscompare.co.uk/isa/fixed-rate-isas/?id=null&business-type=16&activity-type=null&investment-amount=20000&investment-type=1&account-types=4&interest-paid-frequencies=null&terms=null&account-opening-methods=null&account-management-methods=null&notice-periods=null&include-notice-period=true&include-term=true&age=21&rate-type-selection=0&has-withdrawal-restrictions=2&existing-customers-only=2&is-shariaa=2&joint-account-only=2&flexible-isa-only=2&sort-filter=standard-order

Select term ie 1 year at top.

1 year fixed rate is 5.0% Zopa

2 year 5.10% UBL UK

3 year 5.15% UBL UK

4 years rubbish 4.7% Zopa

5 years 5.25% Aldermore.

DRS1

OP At the risk of confusing you more the reduction of the ISA allowance from £20k to £12k only applies to cash ISAs and only if you are under 65.

If you are 65 or over you will still be able to put £20k of new money into a cash ISA.

And even if you are under 65 will still be able to put £20k of new money into an S&S ISA (or if you contribute £12k to a cash ISA you can put the other £8K into an S&S ISA).

Some on here live in hope that this idea will be abandoned and they will go back to the current £20k for everyone and every ISA regime.

Barkin

PSA - my tax-free £1000 allowance on savings.

...£1000 allowance on savings interest

ISA - my tax-free savings upto £20k

...up to (currently) £20k of new subscriptions per financial year