How to hold £7,200 in a 'Cash ISA'

jamesd

Paul_Herring, please cite a source for any living person having any tax liability on any money in their own ISA beyond that 20% deducted by the ISA manager on behalf of HMRC for cash in a S&S ISA.

Reestit_Mutton

jamesd wrote: »

Paul_Herring, please cite a source for any living person having any tax liability on any money in their own ISA beyond that 20% deducted by the ISA manager on behalf of HMRC for cash in a S&S ISA.

If 20% is deducted at source then it implies that the interest is subject to tax like any savings interest is. As such, it would be the recipient's responsibility to account for the difference between the tax deducted and their top rate of income tax if they are in the higher rate band (currently an additional 20% of the gross interest). Basic rate tax payers have no further tax liability above the 20% currently deducted.

The same goes for dividends taxed at 10% for all basic rate earners.

Alas...I would wager that there are probably tens or hundreds of thousands of people in the higher rate income tax band who are blissfully unaware that they have an obligation to fill in a self-assessment tax return every year to declare their peripheral earnings (e.g. interest and dividends) and pay additional tax on them.

HtH
RM

cheerfulcat

Reestit_Mutton wrote: »

If 20% is deducted at source then it implies that the interest is subject to tax like any savings interest is. As such, it would be the recipient's responsibility to account for the difference between the tax deducted and their top rate of income tax if they are in the higher rate band (currently an additional 20% of the gross interest). Basic rate tax payers have no further tax liability above the 20% currently deducted.

The 20% deducted from interest in an ISA is not called tax, though - it's called a charge and is limited to 20%. There is no further liability for a higher rate taxpayer.

jamesd

Reestit Mutton, higher rate tax payers are not required to complete a self-assessment tax return. They are required to inform HMRC of their non-PAYE income and HMRC will then decide if they want to issue a tax return or not. Use of tax returns for higher rate tax payers is not universal.

I asked Paul_Herring to cite a source because there is no tax to pay on cash in a stocks and shares ISA and no need to declare it to HMRC regardless of income level. As cheerfulcat noted, the 20% charge is all there is.

Paul_Herring

because there is no tax to pay on cash in a stocks and shares ISA and no need to declare it to HMRC regardless of income level.

Ah. I was assuming the 20% 'tax charge'[1] was the usual 20% income tax deducted at source from the interest on non-ISA cash savings.


[1] http://www.fieldhamlin.co.uk/isa.htm

Within the Stocks and Shares and Insurance components of an ISA, cash may only be held pending future investment. As an encouragement not to stockpile cash, any interest earned on cash is subject to a flat 20% tax charge within the ISA, regardless of the investor’s personal tax rate. No further tax applies.

cheerfulcat

Note that HMRC will never admit that the 20% " charge " is in fact a tax...

GTG

Paul_Herring wrote: »

I'd be surprised if you'd find any of them offering anything much over 3% (if that.) The cash interest rate is purposely not meant to be a deciding factor when selecting an institution for your S&S ISA

I would say it depends on your investor profile e.g take someone who is a regular trader and prefers to not to leave open positions overnight over weekends, public holidays, personal holidays and periods of sickness. I would have thought the interest rate would then be a key consideration in the selection of a plan manager, and especially where there are large sums involved.;)

Not to mention times of volatility, HL are actually approving of investors going into cash during these periods, from their website:

You can also sell holdings within your ISA and hold the cash during volatile stock markets, or transfer holdings as cash (preserving the ISA wrapper) while you decide where to invest.

Bazn

alternatively if u didn't want market exposure in the S&S isa, you could buy shares in Ian Rushbrooke's perma-bear Personal Assets Trust, which is currently 100% cash (as of 12th feb 2008)

AlexGreen_2

GTG wrote: »

Not to mention times of volatility, HL are actually approving of investors going into cash during these periods, from their website:

Nothing like getting their clients to generate commission flow for them

Cook_County

jamesd wrote: »

Paul_Herring, please cite a source for any living person having any tax liability on any money in their own ISA beyond that 20% deducted by the ISA manager on behalf of HMRC for cash in a S&S ISA.

Just to be accurate on this - I have many clients who pay rates of up to 35% tax on interest in ISAs because they are US citizens (all of my clients are American) so I tend to hope they are living :rotfl: