Are ISAs tax free? | Cash ISAs and tax | YBS
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At a glance:
You won’t pay tax on any interest earned from an ISA.
Any interest earned from an ISA won’t count towards your personal savings allowance either.
You need to follow the rules around withdrawing from an ISA to make sure your money doesn’t lose tax-free status.
ISA interest does not count towards your Personal Savings Allowance
With savings accounts, you can earn a set amount of interest without paying tax. How much you can earn tax free depends on your tax band:
Basic rate tax payer – £1000 of interest per tax year without paying tax.
Higher rate tax payer – £500 of interest per tax year without paying tax.
Additional rate tax payer – no tax-free allowance on savings interest.
These limits are called the personal savings allowance. If the interest you are set to earn from your savings will go above your limit, an ISA is a way of earning interest without paying income tax.
Any interest you earn from saving in an ISA won’t be subject to tax. It also won’t count towards your personal savings allowance.
Any interest you earn from saving in an ISA won’t be subject to tax. It also won’t count towards your personal savings allowance.
Transferring money from one ISA to another
You need to use the transfer process to make sure your money doesn’t lose its tax-free status.
What does tax-free status mean?
Tax-free means you won’t pay income tax on any interest you earn.
Types of ISA
There are four types of ISA:
Cash ISAs
Stocks and Shares ISAs
Innovative Finance ISAs
Lifetime ISAs
We only offer Cash ISAs.
ISAs: Things to remember
You have a £20,000 allowance that you can pay into ISAs each tax year.
You can pay into a Cash ISA with more than one provider, but you may not be able to open more than one Cash ISA with the same provider.
You also need to be careful about transferring ISAs. Taking money out of an ISA and paying into another one without using the transfer process could risk losing tax-free status on your money.
ISAs can be subject to inheritance tax
ISA savings are not tax free if they're passed on as inheritance and the total value of the deceased person’s estate is over the maximum inheritance tax limit.
Passing on your ISA allowance
If your spouse or civil partner had an ISA and dies, you can apply for an extra ISA allowance. This is called an additional permitted subscription (APS).
You can apply for the extra allowance, even if the ISA was left to someone else. The amount you can apply for depends on the date of the death, how much was in the ISA and when it was closed. APS only applies to spouses or civil partners.
You can apply for the extra allowance, even if the ISA was left to someone else. The amount you can apply for depends on the date of the death, how much was in the ISA and when it was closed. APS only applies to spouses or civil partners.
The content on this page is for reference. It is not financial advice.
For help with money issues, try MoneyHelper.
For help with money issues, try MoneyHelper.
