Can someone explain this to me

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hov204
hov204 Posts: 10 Forumite
edited 12 November 2018 at 8:18PM in ISAs & tax-free savings
Hi all, I have a question about my ISA, and I am really uncertain about what this all means.
I have had to transfer money out of my ISA into someone else's non-ISA account, and in so, I have lost my "tax free status" on that money. What does this mean- does this mean I have to pay tax on the money I've withdrawn? Do I pay it on the savings? How would I pay tax? If it helps, I have an "instant saver" account (whatever that means). I'm a student, so I wouldn't know about how I would pay tax on this if I need to, considering I don't have a job?

I'm really unsure of what all this jargon means, the internet has not been at all helpful, so any clarification is appreciated because right now I am very very confused. Please help???
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  • dunstonh
    dunstonh Posts: 116,387 Forumite
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    I I have lost my "tax free status" on that money. What does this mean

    As it is no longer in an ISA, that money no longer has the tax benefits of an ISA.
    Do I pay it on the savings?

    As you no longer own the money as you have gifted it to someone else, then you do not pay tax on it.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • le_loup
    le_loup Posts: 4,047 Forumite
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    Don't forget that the interest is where you get to have income that is tax free. So, whilst it was in the ISA any interest was tax free - when it's transferred out of the ISA any interest thereafter is taxable.
  • hov204
    hov204 Posts: 10 Forumite
    edited 12 November 2018 at 7:30PM
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    le_loup wrote: »
    Don't forget that the interest is where you get to have income that is tax free. So, whilst it was in the ISA any interest was tax free - when it's transferred out of the ISA any interest thereafter is taxable.

    Hi, I know this may sound dumb, but can you clarify what this means please? I'm not entirely sure what this means.

    Would this mean any interest I get in my ISA now for the money remaining would be taxable? Is the interest that is left in my ISA what I have to pay tax on? Or are you referring to the money gifted?
  • Alexland
    Alexland Posts: 9,653 Forumite
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    edited 12 November 2018 at 7:47PM
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    Any money still in the ISA would still get tax free interest.

    Any interest earned on the withdrawn money while it was in the ISA (even if payable later) would still be tax free.

    Any interest earned on the withdrawn money after it was withdrawn would be subject to tax rules.

    However if you are gifting it immediately that would be someone else's problem until they spend it.

    Alex
  • hov204
    hov204 Posts: 10 Forumite
    edited 12 November 2018 at 9:06PM
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    Alexland wrote: »
    Any interest earned on the withdrawn money while it was in the ISA (even if payable later) would still be tax free.

    Any interest earned on the withdrawn money after it was withdrawn would be subject to tax rules.

    However if you are gifting it immediately that would be someone else's problem until they spend it.

    Alex

    Hi, I have a few more questions, but I just want to have an entire understanding (so next time I withdraw any money/deal with my ISA, I'm not as confused as I am right now :) !) :

    - As I have given the money to someone else, they are responsible for paying tax on the money for any interest that it accrues? and what about for the money itself?
    - And just to clarify- I don't have to pay any tax on it, having transferred it? What did you mean by "if payable later"?
    - And what would happen if they spent it before any interest accrued, would they just have to declare that with their taxes?
    - Or would their spending of it mean that I was liable for tax- you mentioned "until they spend it"?
    - What are these tax rules?
    - What are the rules for gifting money from an ISA to a non-ISA- do I have to pay money for this? Is there any disclosure I need to do (aside from within my bank?)

    Again, I apologise for so many questions- my financial education has been lacking, so I would rather that I have a full understanding of my savings and what happens to them, so that next time I have to deal with my finances, I'm not so ignorant! :D
  • masonic
    masonic Posts: 23,279 Forumite
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    hov204 wrote: »
    Hi, I have a few more questions, but I just want to have an entire understanding (so next time I withdraw any money/deal with my ISA, I'm not as confused as I am right now :) !) :

    - As I have given the money to someone else, they are responsible for paying tax on the money for any interest that it accrues? and what about for the money itself?
    It is now their money, so they are responsible for paying tax on any income as it is legally their income. Money itself is not taxed. If at some point in the future the Government introduced a tax or levy on the balance of people's money held in deposit accounts, then they would be responsible for that theoretical tax too.
    - And just to clarify- I don't have to pay any tax on it, having transferred it?
    Your estate might have to pay inheritance tax on it if you die within a certain timeframe and your estate is valued above a certain amount. Otherwise no.
    - And what would happen if they spent it before any interest accrued, would they just have to declare that with their taxes?
    No, it is not necessary to declare the amount of money you have in savings accounts. You do need to declare any income you receive on that money if you would owe any tax on it.
    - Or would their spending of it mean that I was liable for tax- you mentioned "until they spend it"?
    "that would be someone else's problem" "until they spend it"
    - What are these tax rules?
    https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim
    Enjoy!
    - What are the rules for gifting money from an ISA to a non-ISA- do I have to pay money for this? Is there any disclosure I need to do (aside from within my bank?)
    For a student who is likely to live for a few decades longer and isn't likely to need to go into a care home in the near future, and who is giving this money to someone for a legal reason, none.
  • hov204
    hov204 Posts: 10 Forumite
    edited 12 November 2018 at 10:20PM
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    masonic wrote: »
    It is now their money, so they are responsible for paying tax on any income as it is legally their income. Money itself is not taxed. If at some point in the future the Government introduced a tax or levy on the balance of people's money held in deposit accounts, then they would be responsible for that theoretical tax too.

    Sorry for so many questions- this is stuff that I really should have been taught before I left school, and now it's quite terrifying having to try and figure out how to navigate my savings! (I am also going to consult a financial advisor of some kind so that I am not entirely confused by something like this ever again!)

    I only have a few questions now- which is that is the interest which was accrued in my ISA before the transfer, and is now a financial sum of money in there, now taxable? And is there a threshold over which I will have to pay inheritance tax on the money I gifted to HMRC (basically what is the certain amount)?

    Should I have any more questions, (which I probably will) in the next few days, I will ask here again! Thank you all so much for enlightening a confused student :)
  • masonic
    masonic Posts: 23,279 Forumite
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    hov204 wrote: »
    I only have a question now- which is that is the interest which was accrued in my ISA before the transfer, and is now a financial sum of money in there, now taxable?
    No, because as above it was only taxable when it was paid as interest. That happened within the ISA, so there was no tax to pay. Moving it out of the ISA at some later date does not change that. Any interest you went on to earn on this money outside the ISA would, however, be taxable.
  • Alexland
    Alexland Posts: 9,653 Forumite
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    You may find the below free download financial textbook useful:

    https://www.moneysavingexpert.com/news/2018/11/financial-education-textbooks-funded-by-martin-land-in-english-s/

    Alex
  • hov204
    hov204 Posts: 10 Forumite
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    Ah brilliant- will deffo have a read of that!!!
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