Cash ISAs – All You Need To Know

Cash ISA is basically just a deposit account where the interest is paid without being taxed. It won’t be taxed either – provided that it remains in the ISA. A Cash ISA is a great place to park money (as it is not taxed) for those unlikely to use much of the full £10,680 (2011/12) ISA allowance. You can only contribute £5,340 towards a Cash ISA during the 2011/12 tax year. If you take money out of a Cash ISA that’s too bad (in terms of the allowance) – its measured on what you put in, not what you take out.

For example, if you put £3000 into a Cash ISA and withdraw £1,000, you have still used £3,000 of your allowance for the year.

As ISAs are individual and relate to a tax year, you can build up quite a number of them, perhaps with different Banks. This is not a problem, but you can only have one per tax year. So you couldn’t for example put £3000 with Nationwide and £2000 with Halifax during the same tax year (into a Cash ISA).

If your Cash ISA now has a poor rate of interest you can do one of two things. You may for example now have over £20,000 in various Cash ISAs. You could transfer it to another Cash ISA paying a better rate, the important thing is that you do not cash in your Cash ISA in order to move the money to a better Cash ISA – otherwise you are stuck with the same annual allowance of £5,340. In other words if you cash in your £20,000 in Cash ISAs, you lose the ISA status of that money. Moneyfacts.co.uk is a good place to seek out Cash ISA Transfer rates. I suggest doing their search rather than simply viewing their best buy list.

Alternatively, you could transfer a Cash ISA into a stocks and shares ISA, a form would be required for this, but if this would move the entire Cash ISA. If you only wanted to move £2000 or so from a Cash ISA you would be better off simply withdrawing this from your Cash ISA and writing out a cheque. This is an investment and so can (will) rise and fall in value. However, be warned that you cannot reverse this action. It is possible to hold “low risk” funds within a stocks and shares ISA, but technically you cannot hold cash within one. This can be a good option if you do not expect to use or need the funds for the long-term (over 5 years). An investment should provide a higher sum over the long-term as opposed to cash, not always, but in the majority of cases. You would be wise to see my guide called “Our Approach to Investing” for more information on this.

A Stocks and Shares ISA can have the full £10,680 allowance but only £5,340  if you have used any (even £1) of the Cash ISA allowance in the same tax year. Here is a link to the HMRC ISA factsheet.

It is worth noting that if you are not a taxpayer, then your interest on deposit accounts should not be taxed (unless it is so great that you have to). If you don’t earn enough to pay tax then the Bank or Building Society can provide you with an R85 form which means that your interest will be paid gross (untaxed). You are of course personally responsible for ensuring that you pay the right amount of tax under HMRC self assessment rules. I have put lots of links to the HMRC documents, so do use these sources.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results

Call us today or visit our website for more information and to arrange a meeting

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Cash ISAs – All You Need To Know2023-12-01T12:49:05+00:00

Early Access To Pensions Delayed

At the moment you can access your pension from the age of 55. That is not to say that most people do, but it is possible. This might be particularly helpful for some people as under the current rules it is possible to take the tax free lump sum (25% of the fund) and leave the balance in the pension to grow until it is required as income.
The Government considered motions to grant access to pension funds before 55 but have decided against this for the time being. The thinking being that now is not the right time and that people need encouraging to save not withdraw money from their pensions.
The Financial Secretary said ““The Government is committed to encouraging saving and wants to give individuals greater flexibility in saving for retirement. While early access has some merits, there is insufficient evidence to suggest it would act as an incentive to save more into pensions. We will work with industry to develop workplace saving to supplement pension savings. In addition, we will explore other ways of making pension tax rules simpler and more flexible, for example by making it easier to deal with small pension pots.”

I can understand the Government’s position, but would offer this as a thought. Imagine that you have reasonable funds tied up in a pension pot, you are 52 years old and for whatever reason have managed to get into a position where your debts are such that your home is about to be repossessed. Surely in such circumstances, it would be helpful to have access to the tax free cash so that such debts could be reduced or cleared rather than becoming another repossession statistic. If you were 55 this would be possible, but not at any point beforehand. This seems to be a little nuts. Yes we need to ensure that people do not pillage their pensions so that they then become reliant upon the State, but on occasion, it would seem that the smarter move is the short-term. Context is everything and of course, robbing Peter to pay Paul is not a solution, but the option to create an escape plan seems to me to be entirely reasonable.
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
Early Access To Pensions Delayed2023-12-01T12:51:29+00:00
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