Philip Attaway

I have a lump sum I wish to put in a high interest savings account.

I am looking at a Cahoot one with an 5.10% AER. I need access to the money for when I move house.

How is the interest (which is paid monthly) taxed? Is it the same level as my salary (40%) or something different?

eg. if the interest was £400 a month, how much goes in tax?

I already have an ISA which has had £3000 put in this year so cannot get anymore tax free savings

Hope someone can help

Phil

HomerJunior

iTrader: (1)

You should keep it in a savings account till April and then open a new ISA. In the short term you will be getting interest (taxed though) but after April you can make the most of your Tax free ISA. Worth thinking about opening a Maxi ISA as these go up to £7000 I think.

I believe you are allowed to open one ISA per year and can invest a cash lump sum (Mini or Maxi ISA) or monthly (Mini ISA)

Sure someone will correct me if I am wrong.

darts_aint_sport

It was my understanding that no matter how many Mini ISAs you had you could only invest £3000 per year in total?

Philip Attaway

So in April if I open a new ISA and put £3000 in, can I then put another £3000 in the existing one tax free?

darts_aint_sport

It's my understanding that you can't do that, but I am happy to be corrected

HomerJunior

iTrader: (1)

That is my understanding of it, yes. Your existing ISA has a tax free limit of £3000 and you can open a brand new ISA and put up to £3000 in that as well.

I will see if I can get more info and post it here.

HomerJunior

iTrader: (1)

OK guys. Sorry my mistake. You can only invest £3000 per year in a mini ISA but they suggest you open a new ISA every year with different companies to offset risk. If you have more than £3000 to invest a Maxi ISA is recommended £3000 for a cash part of it and the rest in shocks and scares.

ProperCharlie

It will be taxed at source at the lower rate (22%?)

You are then supposed to declare the interest earned, and the tax already deducted at source, on your self assessment form, so that the chancellor can then tax this interest at your full marginal rate, so if that's 40%, you will be charged another 18% of the interest when you get your tax bill

Philip Attaway

Thankyou chaps

Tentenths

^^ what PC said re tax.

Agree, hold back £3,000 for a Mini Cash ISA wef 6/4/05 - either into existing or a new one (and/or one in wife/partner's name for this/next tax year).

For rest also look at Alliance & Leicester's Online Saver accnt (5.35%) or Bradford and Bingley's eSavings (5.25%).

TelBoy

Got a mortgage? If so, consider an offset account. Tax free all the way up to 50% of your outstanding mortgage at most places. You'd be daft not to.

Philip Attaway

I have a mortgage.

This lump sum will be put into the new house with my present house equity when I move allowing me to buy a ridiculously priced London 3 bed semi

Iwan

I've currently got my quan sitting in a Nationwide online-only savings account with an ok ish interest rate, it's less than ING offer but not by much.

I've been thinking about taking out an ISA. If I take one out now (i.e. before April) would I i be able to put £3k in it and another £3k in it in April in the new tax year?

If so, i might have to do that...

Also, can you put more than £3k per year in a Maxi ISA?

Petem95

First use your cash ISA £3k - put the rest in A&L instant access online only account - monthly interest and 5.35% AER.

I dont think theres a better way to bank your money with instant access than that - and if there is I'd like to know about it

Tiggs

20%

Tentenths

Yep, £3,000 in a Mini Cash ISA now and then another £3,000 post 6/4.

The maximum that can go in a *Cash* ISA is £3k per tax year.

Once you've done a Mini Cash ISA you can, if you wish, put up to a further £3k in a Mini Investment ISA (stocks/shares/unit trusts etc) and up to £1k in a Mini Insurance ISA (very few offered/done).

Thus the overall max. limit via the Mini route is £7,000 but only if the 3 components are used.

The alternative is to go the Maxi route. This allows you to invest up to the full £7,000 in an Investment ISA.

Confusing isn't it? Esp. as ISAs were introduced by New Labour 'cos they claimed PEPs were too complicated (not the casel!).

HTH

scoob_babe

just make sure you make the most of FY2005-06 allowance as from April 06 I think the amount you can put into a mini isa is £1000

Iwan

Right, cheers all. I'll get one sorted next week.

paulr

I thought they had changed there mind on that?

Tentenths

Good point s_b

Although the Chancellor announced last November that the proposed reduction from £7,000 to £5,000 in overall ISA limits was being postponed to 2009 this has yet to be confirmed.

Some press reports suggest that this would only apply to the stocks and shares components. But the text of the Chancellor's Pre-Budget Report specifically comments on the preservation of the £3k Cash limit.

We should know for sure when the Chancellor confirms the precise details his Budget speech this April (just in time for the election )

Petem95

They have, its 2009 now - upto 3k cash upto then.

And not so much 'changed their mind', but forced into delaying it.

scoob_babe

Pete - you got a link to where it will stay until 2009?

Petem95

Sorry scoob_babe, you were right - I thought they were maintaining the 3k cash ISA limit until 2009, but seems it is still being cut to 1000 in 2006

2009 is when they stop ISA's altogether - fecking Labour - encouraging people to save? yeah right

scoob_babe

no tax, no profit for the coffers and they wonder why people don't bother saving!!!

fast bloke

Some good advice here - some **** advice as well. Max out a mini ISA first - At this point a Maxi ISA looks reasonable.... don't go for a full on offset account - you will pay 5.9% ish. Look at a portable Nationwide discounted product. Full offset benefit from savings, but not from current account. Rates are about 4.99 (for comparison - your home may be repossesed if you do not keep up payments on a mortgage or other loan secured on it yada yada yada)

Tentenths

Pete,

Think you were right the first time

This is what the Chancellor actually said in his pre-Budget announcement last year - "...To help savers it is right to extend the tax free advantages for the first £7000 of savings - £3000 for the cash component - in Individual Savings Accounts each year. So I will consult on extending the ISA limit for another five years to 2009..."

[From here - http://www.labour.org.uk/ac2004news?ux_news_id=gbpbr04]

Nick100

You can still do better than an ISA with an offset account. ISA normally offers LIBOR minus 0.75% approx. Mortgage is LIBOR plus 0.75%.
With offset, you don't get interest, you save on your mortgatge. No interest, no tax. Effectively if the rate is 5.6% for the mortgage, you get the equivalent of 9.3% interest (5.6 / 0.6 for a 40% tax payer). Even the basic saving at 5.6% is better than ISA rates (comparison since the ISA is tax free).