ISA Confusion

Rose_Crow

grn.w.nv wrote: »

Just been thinking about this. The idea for me was to use the ISA to save up a deposit for a house. However, if I can't ever withdraw money without losing the ISA's tax free benefits, what's the point in puting money in it?

I'm confused

Thought I would post this here in case anyone can help. I had to withdraw £400 from my ISA, which I realise I can't put back in - does this mean that my ISA allowance is now £3200? If so is this forever? (That was the impression I got from the other thread).

If this is case I'm unsure of what to do when I eventually have to withdraw money from an ISA for, say, a house deposit.

romeshw

1) Your ISA allowance is per year, so when you withdraw money it means you've lost that amount from your allowance for that year, it won't affect how much you can put away in future years

2) Interest/capital gains you make on money in an ISA is tax free, so it is a great way to save up money for a house for example. Otherwise you'd probably be paying 20% of any interest you earn if it was just in a savings account.

3) You do lose tax-free benefits on any money you withdraw from an ISA but keep in mind that this is only in respect of interest you earn on it and it is not retrospective.

Hope this helps.

whu

good post romeshw
grn - so to be clear you receive the £400 tax free but any interest you earn on it will be subject to 20% tax ie if you make £40 interest gross you will get £32 and if you are a higher rate tax payer you would pay 40% tax ie£16 and get back £24
so in conclusion even if you have to take some out it is still beneficial to save in an ISA

tiptoe_mouse

grn.w.nv wrote: »

Thought I would post this here in case anyone can help. I had to withdraw £400 from my ISA, which I realise I can't put back in - does this mean that my ISA allowance is now £3200? If so is this forever? (That was the impression I got from the other thread).

If this is case I'm unsure of what to do when I eventually have to withdraw money from an ISA for, say, a house deposit.

In the case above, your ISA allowance for this tax year would only fall to £3200 if you had already put £400 in during the present tax year. This would apply whether you withdraw it or not. The point is that withdrawals do not increase the amount you can deposit. It is possible to have used up all your allowance and have a zero balance.

In any case, in the following tax year you would again be allowed to deposit up to £3600.

HTH
Tiptoe

bryanb

whu wrote: »

good post romeshw
grn - so to be clear you receive the £400 tax free but any interest you earn on it will be subject to 20% tax ie if you make £40 interest gross you will get £32 and if you are a higher rate tax payer you would pay 40% tax ie£16 and get back £24
so in conclusion even if you have to take some out it is still beneficial to save in an ISA

It's worth bearing in mind that the 10% tax band still exists for savings interest.

Rose_Crow

Thanks everyone, brilliant answers, all is clear now :-)