If I'm not being taxed until 2010...

Astraeus

...is there a valid reason for me not to take out the Icesave 7.01% AER savings account for this year and next and then, the year I'm due to be taxed, put it into an Icesave (or other) ISA?

Lokolo

Thats right. I still put my in an ISA even though I do not pay tax because I know when I do pay tax I will want my savings. And as I am putting more than £3000 in each year, if I ended up with £9000 in savings, I would only be able to put in £3600 in an ISA when I start paying tax and therefore have £5400 having the interest taxed/

Mikeyorks

Don't follow the question, I'm afraid. If you take it out for 2 years the rate is 6.6% and the interest is paid annually. So any tax liability is created at the point the interest is paid .... not when it accrues?

Putting it into an ISA doesn't avoid the tax liability on the interest created during the period it's in the fixed rate deposit .... which you half seem to be suggesting with this bit ?

the year I'm due to be taxed

http://www.icesave.co.uk/fixed-rate-savings.html

Steve_xx

If you put it in the Icesave account now you will get 7.01% , as you say. However, you cannot be sure that this account will be available next year and so on. In 2010 when you start to pay tax you cannot shift the whole of your savings thus far into an ISA. You would only be able to deposit £3600 (at current rates) into your ISA in 2010.

The ISA would probably be the best choice if you thought you were not going to need access to your savings for some years to come, whereas the Icesave account might be better in the shorter term, but then your savings would effectively be locked away for 12 months if you decided on that option anyway.

Astraeus

Sorry for not making myself clear - it would have helped to explain my situation to date.

I already have a fully-stocked ISA with NS&I which I am looking to transfer across to Halifax (for the sake of ease...) whilst I have an additional £1,600 of new money to deposit somewhere. I could just put it in the Halifax ISA but it's possible to get better rates with new money elsewhere - the best of which appears to be the Icesave 7.01% savings account. My intention would be to put £2,000 in to the account now and then claim the interest back a year from now at 7.01% AER (in the tax year '09-'10). I would then take the £2,000 and put it into my ISA (either a new one or my Halifax one) as, even with the interest, it would be under £3,600 and thus would fall within my ISA allowance.

Then I would be starting my job in September 2010 which means my tax liabilities would only begin in the financial year April '10-'11 - meaning no tax was payable on the high-interest from my Icesave account. I thought "why not" in getting that .8/.9% extra for the year by putting the money into Icesave over an ISA. Feasible? And worthwhile?

Mikeyorks

That's clearer.;) And appears to work.

You don't say what your current tax situation is? Assuming you're not a taxpayer you can file an R85 with the Icesave account .. in order to get the interest paid gross? Easier than claiming it back after the event.

Astraeus

I'm a student earning below £5,225 so have no tax liabilities whatsoever. I would do it by filling out the R85 as I applied, yeah. Good news, I'll sign up for this now!

Paul_Herring

Assuming that

1) after 2010 you'll be a taxpayer for may years,
2) any money in cash ISAs won't be moved out of the ISA wrapper for many years
3) cash ISAs continue for many years
4) you'll be fully subscribing each year when you start paying tax

you should use ISA's even before you start paying tax, since any loss you make in the next two or so years on the will be made up by tax saved in the many years that money will remain in the ISA after you start paying tax.

If any of the 4 above don't apply then it becomes somewhat murkier.

prudentsaving42

Astraeus wrote: »

I'm a student earning below £5,225 so have no tax liabilities whatsoever. I would do it by filling out the R85 as I applied, yeah. Good news, I'll sign up for this now!

Astaeus, I am a student in the same position as you however I would like you to be aware of the following;

1) Student loans count as income.
2) Maintenance grants (after September 2006/2007) count as income.
3) Bursaries and scholarships count as income.

This may change your circumstances as you have most probably taken out loans/grants over the tax threshold.

Best Wishes,

Kenan :money:

Astraeus

I'll not be fully contributing to my ISA next year or the year after, meaning that I can add in all the money from the Icesave account without any hassle. Then, from 2009/10 onwards, I keep all of my money in an ISA/ISAs. Just for the 12 months until then, having it in the Icesave account earns me £16 more.

Astraeus

kenan557 wrote: »

1) Student loans count as income.
2) Maintenance grants (after September 2006/2007) count as income.
3) Bursaries and scholarships count as income.

Ah, very useful information indeed - that puts an entirely different slant on things as that indeed lifts me over the tax threshold. I'd been told previously that student loans didn't count as income. That £3,300 a year in addition to my wages adds up to a healthy (over-the-threshold) amount.