Does ISA interest increase allowance.

GamePlayer

After a 1 year ISA of £3000 and about 6%, you get about £180 interest.

If you add the full £3600 this year this would bring the ISA up to £6780, including the interest. So this year you actually add £3780

Is this allowed or do you have to move the interest out. Or only add in £3600-last years interest.

If you leave the interest in and add the full £3600 allowance do you get the full tax free interest for the whole amount?

Lokolo

Interest doesn't count as your personal contribution. As long as you personally don't deposit more than £3600 its fine.

And yes, interest can be left in there earning its own tax free interest

Paul_Herring

GamePlayer wrote: »

After a 1 year ISA of £3000 and about 6%, you get about £180 interest.

If you add the full £3600 this year this would bring the ISA up to £6780, including the interest. So this year you actually add £3780

Almost. £3780 has been added, but you've only contributed £3600. The limit is on the amount you contribute, not on the increase in the balance.

Is this allowed or do you have to move the interest out. Or only add in £3600-last years interest.

It's allowed, you don't have to move the interest out, you don't account for any interest in your allowance. For the purposes of working out how much you can put in, you ignore interest.

If you leave the interest in and add the full £3600 allowance do you get the full tax free interest for the whole amount?

Yes. Your interest from last year gets compounded tax free this year (and for future years that you leave it in there for.)