Savings and tax etc

[maccboy]

Probably a silly/easy question for most people on here. Sorry if it is!
I have some ISAs, which I don't need to pay tax on (obviously). I am currently getting a monthly pension from a private pension, which is classed as income, I guess? I'm looking to move an ISA but was wondering if I can move it to a standard savings account (and get a better rate) as I won't have to pay tax - so the interest would be gross. Is this correct?
If I do this, how does the institution know that I don't pay tax? Do they automatically tax the interest and I have to ask the HMRC for a refund?

[bitchstewie]

Not sure I've understood what you're asking as that post is a bit hard to follow with certainty - but the moment you take money out of an ISA wrapper and put it into something unwrapped you're liable to tax as you would be any other unwrapped investment.

Your own personal circumstances will determine what that tax might be.

[maccboy]

Thanks. I suppose I'm asking whether taking the money out of the ISA wrapper is worth it to get a better rate. If, for example, my monthly pension was £500, and the income threshold is £12k (or thereabouts), I could earn £6k of interest before being taxed. Is that correct?

[mikey_b]

maccboy said:

Probably a silly/easy question for most people on here. Sorry if it is!
I have some ISAs, which I don't need to pay tax on (obviously). I am currently getting a monthly pension from a private pension, which is classed as income, I guess? I'm looking to move an ISA but was wondering if I can move it to a standard savings account (and get a better rate) as I won't have to pay tax - so the interest would be gross. Is this correct?
If I do this, how does the institution know that I don't pay tax? Do they automatically tax the interest and I have to ask the HMRC for a refund?

Interest is normally paid gross to everyone. Everyone has an allowance that they can earn each year in interest, but it's up to you as a taxpayer to determine whether you're over any thresholds and to declare it if you are.

[bitchstewie]

maccboy said:

Thanks. I suppose I'm asking whether taking the money out of the ISA wrapper is worth it to get a better rate. If, for example, my monthly pension was £500, and the income threshold is £12k (or thereabouts), I could earn £6k of interest before being taxed. Is that correct?

You can earn more interest outside of an ISA wrapper.

It really does depend on your circumstances though.

For example if you use your ISA allowance in full every year and in a few years time you want to invest in stocks and shares rather than cash savings you'd almost certainly be thankful for having £80-100K in an ISA v having it unwrapped.

Tax obviously matters but don't let the tax tail wag the dog too much IMHO.

[ferret50]

Currently you can receive up to £11750pa tax free, is your total income more that this?

Example
My 'er indoors sole income is her State Pension, which is a little under the obove limit.
She is entitled to the £1000 interest free Allowance and also the £5000 Savings Interest Allowance.

So she can draw interest in addition to her SP of upto a little over £6000....

Further example
My SP and my Forces pension amount to about £15k, so I pay income tax on almost all of my occupational pension so can only clain the standard £1000 savings interest allowance.

Therefore, OP. you do need to offer a little more detail to allow us to help you!

[Jockman]

Not sure about the maths above but I appreciate the sentiment.

The question will I fear become more relevant come Autumn time if any attacks on cash ISAs become obvious. Not that I think they will be retrospective nor do I think they will be immediate.

[C69]

What rates are your cash ISAs currently paying, and are they easy-access or fixed-rate products?

At the moment, market-leading easy-access ISA rates match their non-ISA equivalents, but for fixed-rate products non-ISA is better. The situation can change daily, though.

In other words, I'd make sure I was getting the best rate possible on my ISA funds before deciding to take them out of their tax wrapper.

Regarding the tax situation, you need to consider your personal allowance (£12,570 if you don't earn more than £100,000), your starting rate for savings and your personal savings allowance as explained here: https://www.gov.uk/apply-tax-free-interest-on-savi...

Edited by C69 on Sunday 22 June 13:40

[maccboy]

Thanks all. I've checked the rates and, to make life easier, I think I'll move it to another ISA. I understand how the system is supposed to work now though.

[C69]

maccboy said:

Thanks all. I've checked the rates and, to make life easier, I think I'll move it to another ISA. I understand how the system is supposed to work now though.

Just remember to tell your new ISA provider to request a transfer-in from your old ISA provider. Don't withdraw funds from your old ISA account then open a new ISA account, because you'll lose the tax wrapper status on those funds.

[Eric Mc]

The personal tax allowance is currently £12,570.

There is an additional £1,000 allowance to cover interest received- for basic rate taxpayers.

If you are a higher rate taxpayer, the interest allowance drops to £500.

[frisbee]

mikey_b said:

Interest is normally paid gross to everyone. Everyone has an allowance that they can earn each year in interest, but it's up to you as a taxpayer to determine whether you're over any thresholds and to declare it if you are.

I contacted HMRC to pay tax on some dividends last year, when I was on the call they could see exactly how much interest I had earned on savings and adjusted my tax code for the tax on that as well.

[supersport]

Eric Mc said:

The personal tax allowance is currently £12,570.

There is an additional £1,000 allowance to cover interest received- for basic rate taxpayers.

If you are a higher rate taxpayer, the interest allowance drops to £500.

Don’t forget the starting rate for those on less than £17,570. Someone on the basic tax threshold or leas would £5k of interest tax free.

https://www.gov.uk/apply-tax-free-interest-on-savi...

[Armitage.Shanks]

frisbee said:

mikey_b said:

Interest is normally paid gross to everyone. Everyone has an allowance that they can earn each year in interest, but it's up to you as a taxpayer to determine whether you're over any thresholds and to declare it if you are.

I contacted HMRC to pay tax on some dividends last year, when I was on the call they could see exactly how much interest I had earned on savings and adjusted my tax code for the tax on that as well.

I don't need to tell HMRC anything about interest from my savings accounts - they know already as it appears it's all now joined up and send me a demand every year. I pay it rather than have my code adjusted