Tax on savings accounts

[WhiteBears]

does anyone know when do the government tax you on your savings and how much? i have a current, saving and an ISA account, as isa is tax free im thinking transferring most of my money from my saving,& current account to my isa account, before they tax my money then transferring some back to other accounts so i dont get taxed.

hope u know what i mean?

some of you might say why dont i put all my money in the isa, well my isa's interest is like 1%, my saving account is giving me 5% thats why i want to transfer it back.

many thanks

[twix123]

Any tax due will be taken at source when the interest is paid. If your Savings Account is paying interest at 5% gross, less tax at 20% or 40% at your highest rate, although only 20% (I think) will be deducted at source, the net received will still be higher than putting all your funds in an ISA paying only 1% tax free. Under the ISA rules, you can only put a maximum of £5100 into an ISA in the current tax year and cannot keep switching the funds backwards and forwards. If you were to switch now from Savings to your ISA, any interest accrued will be calculated net of tax. The government don't take the tax at a certain date, the savings institution deduct the tax whenever they credit you with the interest. Therefore any interest accrued to date is calculated net of tax.

[Captain Spod]

Further to Twix above... If you are higher rate taxpayer you will pay the same amount of tax again on any interest (20% of the GROSS amount). If you are a non-taxpayer you can reclaim all the tax paid on interest. There is no point in having a cash ISA if you are a non taxpayer as the rates are virtually always worse than you can get from an ordinary savings account as you have discovered.

[boxtops]

You can pay a maximum of £3600 into your cash ISA in any tax year, not more than that. However the interest rate is not great at the mo, but it's worth it to me not to have to pay tax on the interest from that account.
Other accounts are taxed at source at whatever rate of tax you pay - so if you are an upper rate tax payer (for instance) 40% of the interest is taken out before it's paid to you. The amount of interest paid into your account is the amount left after tax.

[dasherman]

boxtops - the yearly limit for ISA's has changed to £5,100 in cash and £10,200 overall.

[Captain Spod]

Boxtops - Sorry but you are just plain wrong. Tax is taken at basic rate (20%) at source, a Higher Rate payer declares the gross amount and pays the same again (see my reply above) direct to HMRC. ISAs are not always worth having, check the net amount you will actually receive - some monthly savings accounts offer really good rates for up to, say, £250 pm over a fixed term.

[WhiteBears]

thanks or yur response.

i dont understand why i have to pay tax on my savings? the money that comes into my account is my wage, and im already paying tax on that!!!!

[twix123]

You're paying tax, like the rest of us, because interest is classed as income, just the same as a wage or salary.