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Maximizing my savings, what ISA to use?

Timray87
Timray87 Posts: 1 Newbie
in ISAs & tax-free savings
So ive been paying into a HTB ISA since Dec 2015 and have roughly £7.5k in there. Will be using this money (along with other savings for my first house).

Im looking at opening another ISA to siphen off 25% of my earnings to pay my Tax (im self employed). I would rather do this as i would earn more interest than in a current account.

Can I do his whilst still paying into a HTB? I dont plan on putting more than £20k in a year and will empty the second ISA when the time comes to pay my Tax.

If so what ISA would be best?

* might be worth mentioning I invest money seperately in the stock market for the house deposit/reirement.

Thanks in advance

Comments

  • masonic
    masonic Posts: 29,071 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    No you cannot pay into a HTB ISA and another cash ISA in the same tax year, unless you use a split-ISA provider (for example Nationwide). However, this could give you a lower return overall vs. saving into a taxable account and the best HTB ISA. It will all depend on your marginal rate of tax, if you have any unused personal savings allowance, the likely amount you will end up saving and how long before you purchase a house.
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
    Uniform Washer
    If you are a low earner and therefore cannot make use of the Personal Savings Allowance then the savings starter rate of tax would apply

    This allows you to have upto £5,000 of taxable interest taxed at a 0%.
  • mije1983
    mije1983 Posts: 3,665 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker Name Dropper
    Timray87 wrote: »
    Im looking at opening another ISA to siphen off 25% of my earnings to pay my Tax (im self employed). I would rather do this as i would earn more interest than in a current account.


    Do you have a lot of savings? Are you a basic rate or higher rate taxpayer? If you are a basic rate, you get £1000 of interest tax free, higher rate you get £500. So unless you will exceed those figures, it's not usually worth opting for an ISA which mostly have lower rates.

    For example, the top easy access ISA is 1.35%, and top 1 year fix is 1.46%. Many better savings options out there, even through current accounts.

    Is your investment for house purchase/retirement in a LISA or S&S ISA? If so, that is also protected from tax.
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
    Uniform Washer
    If it's not in an ISA (or other genuinely tax exempt account) then the interest is not "tax free".

    Might not affect the op bit higher rate payers can easily have an extra £100 tax to pay as a result of the £500 interest you describe as "tax free".

    Same scenario for some basic rate payers. Only 5% extra tax for them but it is still extra to pay.
  • mije1983
    mije1983 Posts: 3,665 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker Name Dropper
    edited 9 August 2018 at 11:33PM
    Dazed_and_confused wrote: »
    If it's not in an ISA (or other genuinely tax exempt account) then the interest is not "tax free".

    If it's sufficiently correct wording for HMRC to use, then it's good enough for me ;)
    You may also get up to £1,000 of interest tax-free depending on which Income Tax band you're in.
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
    Uniform Washer
    Sadly whoever writes that tosh for gov.uk has a serious lack of knowledge about income tax!

    It appears they still believe the PSA is actually an allowance :-)
  • Mr.Saver
    Mr.Saver Posts: 521 Forumite
    Fifth Anniversary 500 Posts Name Dropper Photogenic
    Since you are going to empty the "second ISA" within a year of time, you won't benefit from the tax shelter in the long run, so this entire question has become much simpler: Which way you get the most money? Saving in an ISA with lower interest, or outside an ISA with higher interest but pay tax?

    Top current account currently pays 5%. Depends on your tax band, you will pay up to 45% tax on the interest outside an ISA, but even after the 45% tax, you still get 5% * 55% = 2.75%, a lot higher than the top cash ISA which pays 1.54% fixed for 1 year.
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