Tax peril of mix-and-match Isas

SaverS looking to put money into a cash Isa in dribs and drabs, or mix and match different accounts, can easily fall foul of the rules.

They run the risk of forfeiting a chunk of their Isa allowance unless they pick the right bank or building society. It’s all down to the way each organisation has set up its Isas.

Some let you mix fixed rate and easy-access accounts, and add to them whenever you want during the year. all are wrapped up together to count as just one cash Isa.

But with most providers, opening an easyaccess account will count as one Isa, while your fixed rate will count as another.

Opening more than one Isa in the current tax year breaks the overall Isa rules laid down by HM revenue and Customs (HMrC).

These say you can put up to £20,000 into a cash Isa this tax year — which runs from april 6, 2019, to april 5, 2020 — where your interest is automatically tax free. But you can only open and hold one cash Isa in the current By Sylvia Morris tax year. You can run into problems if you open a fixed rate cash Isa now with part of your allowance, with a plan to add to it later in the year when more money comes in from, say, an inheritance or tax-free sum from a pension.

With fixed rate Isas, there is a window when you can fund your account, stipulated by each bank or building society. For example, with virgin Money’s one-year fixed rate at 1.4 pc, you have 60 days to add your money after you have opened your account.

Yorkshire BS, at 1.45 pc, has no specific deadline, but you can add to it only while the account is still on sale to new savers. Once the deadline passes, you can’t add any more.

Nor can you open another cash Isa with your remaining allowance because of the ‘one cash Isa only’ rule. You lose the rest of your cash Isa allowance. You can get around it by transferring your virgin Money or Yorkshire BS Isa to another provider and adding to it once it is open. But it’s both tiresome and expensive as you’ll pay the penalty charge equivalent to two months’ interest for taking your money early.

However, Charter Savings Bank, Ford Money, aldermore Bank, Newcastle BS and Kent reliance have set up their Isas so you can mix and match fixed rate and easy-access deals under one Isa account. They are available online, but Newcastle and Kent reliance offer them through their branches, too.

among the best overall rates are Kent reliance with an easy-access account at 1.15 pc, a one-year fixed at 1.45 pc and twoyear at 1.55 pc. Newcastle BS has an easyaccess account at 1.35 pc for the first 12 months along with a one-year fixed at 1.45 pc and a two-year at 1.65 pc.

With Charter Savings Bank you have the choice of easy access at 0.75 pc, a 95- day notice account at 1.45 pc and fixed-rate accounts at 1.62 pc for one year, and 1.82 pc for two years.