Latest World Breaking News Online News Portal
HMRC has spelled out the rules when it comes to ISA allowances after a question from a taxpayer. A person contacted the tax authority over social media as they had mistakenly added their ISA interest earnings to their self assessment tax return.
They asked if HMRC could cancel or resubmit the form, saying they couldn’t get through on the phone to resolve the issue.
HMRC initially responded to say they should be able to view their tax return online and amend it by removing the ISA interest details, and then resubmit the form.
The customer later responded to say they had managed to fix the issue and to get through on the helpline, but were surprised to be told ove rthe phone that ISA interest earnings are taxable.
They asked the tax body to confirm the rules for ISAs. HMRC clarified: “An ISA is a type of savings account. Customers can invest money – up to the maximum amount each tax year – without paying any tax on the income they get from it.”
The current ISA allowance is £20,000 a year, meaning you can deposit up to this limit in total across several ISA accounts or in one account with no tax to pay on your interest earnings or investment growth.
Any deposits above this amount will be taxed. You can use the allowance across different types of ISAs, including cash ISAs, stocks and shares ISAs and innovative finance ISAs.
The topic of ISAs has been under discussion as there have been reports that Labour is thinking of bringing in an additional cap on how much you can save into cash ISAs, to encourage people to move more into stocks and shares.
Chris Walklate, group strategic product manager at financial advice firm Wesleyan, opposes the policy change. He said: “In our view, lowering the cash ISA limit would be the wrong thing to do.
“It risks harming those who are using cash for good reason, for example, because it meets their risk appetite or because they want to hold emergency savings in a tax-efficient way.
“Lowering the cash allowance could force them into unsuitable, higher-risk products or lead them to paying more tax.”
Others think more radical changes are needed to the ISA system. Michael Healy, UK managing director of trading platform IG, said: “Fiddling with the tax-free allowance simply doesn’t go far enough.
“This is because the cash ISA is fundamentally broken – most people aren’t saving enough to pay tax on their money, and aren’t getting the returns they need to grow their pots.
“We’re calling for the cash ISA to be scrapped altogether, so we can start channelling more tax relief and long-term wealth into reviving the UK stock market.”
